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HMRC internal manual

Capital Allowances Manual

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HM Revenue & Customs
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Plant & Machinery Allowances (PMA): Long-life assets: Monetary limits

CAA01/S97 - S100

There is a monetary limit. Where the total expenditure in a chargeable period on long-life assets, which are not excluded from the monetary limit, is less than the monetary limit, the long-life asset rules do not apply to that expenditure. The monetary limit is £100,000 per annum. It is reduced or increased if the chargeable period is less or more than 12 months and for companies in groups.

The monetary limit applies only to expenditure incurred by companies, individuals and partnerships of individuals. It does not apply to trusts or partnerships with companies.

Some expenditure on long-life assets is excluded from the operation of the monetary limit. This expenditure is ignored in deciding whether the monetary limit is exceeded and remains subject to the long-life asset rules even if the limit is not exceeded. The expenditure excluded from the monetary is:

  • expenditure on the provision of a share in plant or machinery;
  • expenditure which qualifies for allowances under CAA01/S538 (contributions);
  • expenditure incurred on the provision of plant or machinery for leasing.

 

Example Janis draws up her accounts to 31 December each year. Her spending in 2010 on long- life assets is £90,000 on a machine to be let and £80,000 on a machine for use in her manufacturing business. The long-life asset rules apply to the £90,000 but not to the £80,000 as that is below the de-minimis limit.

Expenditure on an asset may be spread over several chargeable periods. In that case all the expenditure to be incurred under a contract is treated as incurred in the same chargeable period as the first instalment in determining whether the monetary limit is met.

Example Jim draws up his accounts to 31 December each year. In 2010 and 2011 expenditure on long-life assets is £150,000 under one contract, payable in 2 instalments - £80,000 on 11 December 2010, £70,000 on 11 July 2011 and £90,000 under a second contract payable on 1 December 2011. For the purposes of the monetary limit the whole £150,000 is treated as incurred in 2010 and the limit for that chargeable period has been exceeded. The expenditure of £90,000 is treated as incurred in 2011 and is below the limit. Expenditure of £80,000 in 2010 and £70,000 in 2011 is therefore subject to the long-life asset rules.

Where a business is carried on by an individual the monetary limit is only available if the individual devotes substantially the whole of his or her time to carrying on the business throughout the chargeable period.

Where a business is carried on by a partnership the monetary limit is only available if all the partners are individuals and at least half the partners devote substantially the whole of their time to carrying on the partnership business throughout the chargeable period. Where there are changes in the numbers or involvement of partners during the chargeable period, this condition is applied by looking at the parts of the period before, between and after the changes separately.

Example David, Stephen and Graham are farming in partnership. Neil and Jack join the partnership half way through the chargeable period. David and Graham work full time on the farm up to the change. David, Graham and Jack work full time after the change. The condition is satisfied as 2 out of 3 partners in the first half and 3 out of 5 in the second half work full time.

If a company has one or more associated companies, the monetary limit for the chargeable period is divided by one plus the number of associated companies. For example, if a company has three associated companies in a chargeable period 10 months long, the monetary limit is £20,833 = (£100.000 x 10/12 x 1/4).