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HMRC internal manual

Capital Allowances Manual

HM Revenue & Customs
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Plant and Machinery Allowances (PMA): hire purchase: abortive expenditure


The side note to CAA01/S67 says that it is about hire purchase and similar contracts. However, it is wider than that. In certain circumstances the legislation in Section 67 may apply to abortive capital expenditure incurred on plant or machinery.

A person may incur capital expenditure on an asset which is never actually owned - perhaps because the buyer withdraws from the supply contract or because the supplier defaults or for some other reason. In those cases the person will not qualify for PMA on the expenditure incurred under CAA01/S11 because it will not be possible for the person to satisfy the ownership condition in Section 11(4)(b).

Section 67 CA23310 applies where a person incurs capital expenditure on the provision of machinery or plant for the purposes of the trade ‘under a contract providing that he shall or may become the owner of the plant or machinery on the performance of the contract’. Where there is a contract like that Section 67(1)(a) treats the machinery or plant as belonging to the person.

Abortive expenditure - for example a deposit paid on machinery which is never actually supplied - may be incurred under a contract which provides that the taxpayer shall or may become the owner of the asset on performance of the contract. If so, that expenditure will qualify for PMA because of Section 67(1)(a).

When the taxpayer ceases to be entitled to the benefit of the contract without becoming the owner of the asset Section 67(4) treats the taxpayer as ceasing to own the asset. This means that the taxpayer will have to bring a disposal value to account. There is guidance about disposal values at CA23330.