Capital allowances: contributions towards capital expenditure on plant or machinery: draft legislation
This document contains draft legislation introduced by the government, to confirm tax rules to prevent businesses claiming capital allowances for plant and machinery costs met by other businesses.
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On 29 May 2013, the government announced its intention to introduce legislation as an addition to Finance Bill 2013, which will have effect from that date, to confirm the capital allowances rules applicable where one business contributes to another’s capital expenditure on plant or machinery.
The legislation protects the exchequer, by putting beyond any doubt that a business cannot claim capital allowances on capital expenditure on plant or machinery which is covered by a contribution from another business. This stops potential claims for substantial sums of historic expenditure for which businesses receiving contributions have not borne the economic cost and did not expect to obtain allowances. Also it prevents any double allowances for the same expenditure.
The legislation applies to capital allowances claims made on or after 29 May 2013 by a recipient of a contribution; and, in certain circumstances, to expenditure pooled previously. For a business making a contribution the legislation only applies in relation to future contributions.
Specifically, the legislation makes amendments to section 538 CAA to confirm that contribution allowances under Part 2 are available in relation to a contribution of a capital sum to capital expenditure on the provision of plant or machinery in the recipient’s hands. In this case the contributor’s capital contribution is treated as capital expenditure on the provision of plant or machinery for use in the contributor’s business, and it is the contributor who can claim capital allowances, not the recipient.
In certain circumstances, if the recipient of a contribution has previously pooled expenditure which would be ineligible to be pooled under the legislation (as amended) and has not been subject to a claim, then the amount of the unrelieved portion of that expenditure is brought into account as a disposal value.