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HMRC internal manual

Capital Allowances Manual

General: Contributions: Exceptions to general rule

CAA01/S534 - S536

There are three exceptions to the general rule:

  • Northern Ireland regional development grants (up to 31 March 2003),
  • insurance and compensation, and
  • contributions made by persons (other than public bodies) who cannot get tax relief.

A grant made by the government is not deducted if it is made under Northern Ireland legislation and it is declared by Treasury order to correspond to a grant under Part II Industrial Development Act 1982. This means that the recipient gets capital allowances onthe whole of the expenditure.The Treasury order expired on 31 March 2003 and so Northern Ireland regional development grants made under an agreement entered into on or after 1April 2003 are deducted from the qualifying expenditure.

There is one exception to this exception for Northern Ireland regional development grants.The grant is still deducted from the expenditure in line with the general rule if it is”netted off” by paragraph 8 schedule 3 Oil Taxation Act 1975 for the purposes ofarriving at expenditure for petroleum revenue tax relief. If part of expenditure met by the grant would have qualified for petroleum revenue tax relief and part would not,apportion the grant so the part which relates to expenditure which would be netted off is deducted from the capital expenditure for capital allowances purposes and the remainder is not.

Insurance moneys or other compensation moneys received for the demolition or destruction or putting out of use of an asset are not treated as subsidies or contributions. Thatmeans that they are not deducted from expenditure that qualifies for capital allowances.

Example 1 Gary runs a ferry service. One of his boats is destroyed by fire. He uses the insurance moneys to buy a replacement. The insurance moneys are not a contribution to the cost of the replacement. This means that the full cost of thereplacement is qualifying expenditure for PMAs. The insurance moneys may be brought to account as a disposal receipt CA23250.

A contribution is not deducted if the following conditions are satisfied:

  • the person making it is not a public body, and
  • that person cannot claim capital allowances on it or deduct it in calculating profits.

If the person making the contribution is exempt from tax, assume that that person is chargeable to tax when you decide whether the second condition is satisfied.

Example 2 George and Andrew are friends. George is a scriptwriter and Andrew is a shopkeeper. George makes a contribution towards Andrew’s expenditure on a new computer. You cannot deduct George’s contribution from Andrew’s expenditure. George cannot claim capital allowances on the contribution or deduct it in calculating his profits as a scriptwriter.