CA23195D - Plant and Machinery Allowance (PMA): First-Year Allowance (FYA): 40% First-Year Allowance: Plant or machinery for leasing – examples
Sections 45U and 46 CAA01
The following examples show how the principles set out in CA23195B and CA23195C apply in practice. In the examples assume that the AIA has already been utilised.
Example 1
Green and Gold Van Leasing Ltd incurs £2m on a fleet of zero-emission vans for leasing to business and non-business customers within the UK. All of those customers are resident in the UK and will use them within the UK. All of the £2m of expenditure qualifies for the 40% FYA. Therefore, Green and Gold Van Leasing Ltd is entitled to an FYA of £800k. The remaining £1.2m of expenditure may be added to the pool in the subsequent accounting period when it will be eligible for WDAs.
Example 2
NV15 Asset Finance Ltd incurs £2.5m on heavy goods vehicles for leasing to a range of UK and non-UK businesses.
£2m of the expenditure is on vehicles for leasing to UK businesses subject to UK tax. Therefore, £2m qualifies for the 40% FYA and NV15 Asset Finance Ltd can claim an FYA of £800k. The remaining £1.2m may be added to the pool in the subsequent accounting period when it will be eligible for WDAs.
£500k of the expenditure is on vehicles for leasing to businesses operating in Serbia and subject to Serbian tax. Therefore, £500k does not qualify for the 40% FYA. However, it may be allocated to a pool in the chargeable period it was incurred and would then be eligible for WDAs.
Example 3
Rio Tool Hire is an unincorporated business and incurs £100k on tools for hiring out to businesses for various lengths of time depending on the customer’s requirements. Rio Tool Hire’s customers are all based in the UK.
Some of the tools will be cross hired to other tool hire providers for onward hiring to other customers. This does not prohibit expenditure from qualifying for the 40% FYA. However, Rio Tool Hire knows there is a risk that the tools may be sub-let to a non-UK business outside the charge to UK tax. Therefore, Rio Tool Hire includes contractual terms that prohibit the tools from being sub-let to a person outside the UK and from being taken outside the UK. When preparing the tax return, Rio Tool Hire carries out some checks to ensure that these conditions have been adhered to in practice and that the conditions for the FYA have been met. Having carried out these checks and identified no overseas leasing, Rio Tool Hire is entitled to claim the 40% FYA on the £100k of expenditure which results in a £40k FYA for the period in which the expenditure is incurred. The remaining £60k may be added to the pool in the subsequent accounting period when it will be eligible for WDAs.
Example 4
Gary and Pat Plant-hire Partners are a partnership of two individuals subject to Income Tax on the income from their plant-hire business. The partners spend £2m on an item of construction plant after being selected as a preferred supplier for a new construction project that involves the installation of an interconnector between the UK and France. The construction plant will be leased partly to a UK company within the charge to Corporation Tax and partly to a French business outside the charge to UK tax. The partners consider that the split will be 50:50 between the two businesses. As the plant is not wholly (or almost wholly) for use by the lessees for the purposes of earning income which is within the charge to UK tax, and it is for leasing to a non-UK resident for use for earning income outside the UK which is outside the charge to UK tax to a significant extent, the construction plant does not qualify for the 40% FYA. However, it may be allocated to a pool in the chargeable period it was incurred and would then be eligible for WDAs.