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HMRC internal manual

Capital Allowances Manual

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HM Revenue & Customs
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General: Contributions: General rule about contributions received

CAA01/S532 & S533

You may have a case where a person who incurs expenditure that qualifies for capital allowances receives a contribution towards that expenditure. If so, the general rule is that the contribution is deducted from the expenditure and the person gets capitalallowances on the net amount. There are exceptions to this general rule CA14200.

For this general rule it does not matter if:

  • the contribution is made by a public body or another person. A public body is the Crown or any government or public or local authority wherever it is based.
  • the contribution is capital or revenue - unless the allowances are dredging allowances. A contribution towards a person’s expenditure on dredging is deducted if it is made by a public body or if it is a capital contribution made by another person.
  • the contribution is not received until after the expenditure is incurred. If the expenditure was to be met in whole or part by the contribution then it is still deducted.

Treat a non-returnable grant of money given by way of gift, that is, not in return foranything, as a contribution if there is a clear connection between the receipt of the grant and the incurring of the expenditure. The grant should be specifically related to the capital expenditure on the provision of capital assets.

The fact that taxpayer applies for and receives a grant after expenditure on assets on which capital allowances are claimed has been incurred and paid for does not prevent the grant being deducted as a contribution (Cyril Lord Carpets Limited v Schofield 42TC637).You should also apply the contributions legislation to a subsidy or contribution towards expenditure that a person becomes entitled to after expenditure has been incurred. Do not treat a loan as a contribution.

European Community (EC) Grants are deducted from expenditure that qualifies for capital allowances. For example, FEOGA grants (grants from the EC Agricultural Fund/EuropeanGuidance and Guarantee Fund) are deducted.