CA23195F - Plant and Machinery Allowance (PMA): First-Year Allowance (FYA): 40% First-Year Allowance: Miscellaneous

Pooling the unrelieved part of the expenditure

If a 40% FYA is claimed for an amount of first-year qualifying expenditure, the remaining unrelieved part of the expenditure cannot be pooled in the same chargeable period but may be pooled in the following or a later chargeable period unless there is a disposal in respect of the plant or machinery (see CA23110).

Short-life asset elections

If a valid short-life asset election is made, there is nothing to prevent a 40% FYA from being claimed on the expenditure. The guidance on short-life assets is available at CA23600. In particular, in respect of plant or machinery for leasing where a short-life asset election has been made, consideration will need to be given to:

  • whether item 5, and the exceptions to it, contained in the table in Section 84 CAA01 precludes short-life asset treatment, and
  • the provisions in Section 87 CAA01 where the use of the plant or machinery for leasing changes.

Change of use

A business that has validly claimed the 40% FYA may later begin to use the relevant plant or machinery for overseas leasing in a subsequent chargeable period.

For example, a business may purchase an asset and lease it to a UK company for two years for use by the lessee for the purpose of earning income within the charge to Corporation Tax. In the third year, if there are no UK customers, the asset may instead be leased to, for example, a German business.

In these circumstances, there is no requirement to treat this change of use as a disposal, nor is there a clawback of the 40% FYA claimed in the first chargeable period.

However, in cases where there is a change of use, consideration should be given to whether the anti-avoidance rules apply (see CA23195E in particular).

Disposals

For some FYAs, immediate balancing charges are required to be brought into account on disposal (for example, see CA23174AD in respect of full expensing). These rules do not apply for the purposes of the 40% FYA. Where there is a disposal of plant or machinery in respect of which the 40% FYA has been claimed, the normal disposal rules apply (see CA23230).

Section 220 CAA01 rules on allocation of expenditure to a chargeable period

Section 220 CAA01 contains anti-avoidance rules which, in certain circumstances, allocate expenditure incurred on the provision of plant or machinery for leasing under certain types of lease to different chargeable periods (see CA28450).

These rules have no practical effect where a valid claim is made for the 40% FYA.

Where Section 220 CAA01 applies, it limits the amount of expenditure that may be added to a pool in the chargeable period in which the expenditure is incurred. However, as the 40% FYA is claimed in the year the expenditure is incurred, and before any amount of expenditure is allocated to a pool, Section 220 CAA01 does not restrict the amount of expenditure relieved in that period because no expenditure is added to the pool in that period.

The balance of expenditure unrelieved by the 40% FYA may be added to the appropriate pool in a subsequent chargeable period (see CA23110). Section 220 CA01 does not affect the amount that can be pooled in this period because it only applies in the year the expenditure is incurred.

However, where a group of companies has differing chargeable period end dates and arrangements are structured to exploit the 40% FYA, consideration should be given to whether other anti-avoidance rules apply (see CA23195E in particular).

Long funding leases and hire-purchase or similar contracts

Where the long funding lease rules (CA23800) or the hire-purchase or similar contracts rules (CA23300) apply, a person other than the legal owner is treated as the “owner” of the plant or machinery for the purposes of PMAs, thus is the person entitled to claim PMAs. In such cases, the person treated as the owner (“Person A”) may sub-lease the plant or machinery to another person. Person A is entitled to claim the 40% FYA provided the conditions are met (see CA23195A).