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HMRC internal manual

Capital Allowances Manual

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Plant and Machinery Allowance (PMA): First Year Allowance (FYA): expenditure on zero emission goods vehicles: definition of 'undertakings'

The 100% FYA for zero-emission goods vehicles has been designed to be compatible with the European Union’s General Block Exemption Regulation, which is aimed at undertakings. This means that individual persons must consider whether they are part of an undertaking to determine if they are eligible to claim the relief and whether they have exceeded the €85 million cap on qualifying expenditure.

What is an undertaking?

An undertaking is defined in section 45DB to mean

  • an autonomous enterprise
  • an enterprise that is not autonomous and its partner enterprises (if any) and its linked enterprises (if any).

The legislation adopts the definitions of ‘enterprise’, ‘autonomous enterprise’, ‘partner enterprise’ and ‘linked enterprise’ given by Annex 1 to the General Block Exemption Regulation.

An enterprise is defined as any entity engaged in an economic activity, irrespective of its legal form. Annex I notes that this includes, in particular, self-employed persons and family businesses engaged in craft or other activities, and partnerships or associations regularly engaged in an economic activity.

Further guidance on the three types of enterprise, with some examples, are given below. In very broad terms, an undertaking includes, sole proprietors, partnerships and companies individually, but also any other entities they control, either through share holding or influence, e.g. groups of companies or joint ventures.

Types of undertaking

(i) An autonomous enterprise is not a linked or partner enterprise and is totally independent. This includes for example: sole traders, partnerships, singleton limited companies.

To be autonomous an enterprise must have

  • no participation in other enterprises and no enterprise has a participation in it; or,
  • it has a holding of less than 25% of the capital or voting rights (whichever is the higher) in one or more other enterprises and/or outsiders do not have a stake of 25% or more of the capital or voting rights.

Example: Groundhog Ltd is entirely owned by Joe. Joe has no other business interests and neither he nor Groundhog Ltd has other financial or controlling interest in any other enterprise. Groundhog Ltd is therefore autonomous.

Example Bill, Fred, George, Percy and Charlie each own 20% of the share capital and voting rights of Red Ltd (they are not otherwise connected). Red is autonomous because nobody owns more than 25% of the capital or voting rights.

(ii) In broad terms linked enterprises are those where individual enterprises form a group through the direct or indirect control of the majority of voting rights of an enterprise by another, or through the ability to exercise a dominant influence on an enterprise. A typical example is a wholly owned subsidiary of a group of companies.

Two or more enterprises are linked when they have any of the following relationships with each other:

  • One enterprise holds a majority of the shareholders’ or members’ voting rights in another.
  • One enterprise is entitled to appoint or remove a majority of the administrative, management or supervisory body of another.
  • A contract between the enterprises, or a provision in the memorandum or articles of association of one of the enterprises, enables one to exercise a dominant influence over the other.
  • One enterprise is able, by agreement, to exercise sole control over a majority of shareholders’ or members’ voting rights in another.

Example: Split plc owns 51% of, and has 51% of the voting power over, Groundhog plc. Groundhog is therefore a Linked enterprise with Split.

(iii) Partner enterprises are those that establish major financial partnerships with other enterprises, without one exercising direct or indirect over the other. They must not otherwise be linked enterprises.

As a general rule, partner enterprises are those which are not linked enterprises but where an enterprise, either solely or jointly with one or more linked enterprises, holds 25% or more of the capital or voting rights in another enterprise.

This general rule does not apply, even where the 25% threshold is breached, where the investor is a venture capital company, university or various other organisations listed in Annex I of the General Block Exemption Regulation.

Note: ‘partner enterprises’ should not be confused with partnerships.

Example: Dave Ltd owns 33% of Chas Ltd and 49% of Dennis Ltd. Mike owns 25% of Dave Ltd. These enterprises are partnered.