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HMRC internal manual

Capital Allowances Manual

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HM Revenue & Customs
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IBA: Enterprise zones: 20 year time limit

Budget 2007 announced a business tax reform package including the gradual withdrawal of IBAs and ABAs over four years. Legislation was introduced in FA08 to give effect to those changes. The phased withdrawal of IBA writing down allowances had effect for chargeable periods ending on or after 1 April 2008 for businesses within the charge to CT and 6 April 2008 for businesses within the charge to IT. This phasing out does not apply to EZ WDAs. They continue in full until the cut-off date. There are no IBA writing down allowances for the financial year beginning on 1 April 2011 and subsequent years. CAA01/S298. 

Construction expenditure incurred under a contract entered into during the life of the zone does not qualify for enterprise zone allowances if it is incurred more than 10 years after the zone expires. This means that expenditure on constructing a building must be incurred within 20 years of the site being included in the zone.

For example, the Hartlepool enterprise zone was designated on 23 October 1981. Construction expenditure incurred in the period 23 October 1981 to 22 October 1991 qualifies for enterprise zone allowances. Construction expenditure incurred in July 1994 under a contract entered into on 24 May 1990 will also qualify for enterprise zone allowances because it was incurred under a contract entered into during the life of the zone and it was incurred less than 10 years after the zone expired.

If the construction expenditure under the contract of 24 May 1990 is not incurred until June 2002 it will not qualify for enterprise zone allowances because it was incurred more than 10 years after the zone expired.

You may have a case where a person claims enterprise zone allowances on construction expenditure incurred after the zone has expired on the grounds that the expenditure was incurred under a contract entered into during the life of the zone. Contracts like that are sometimes called golden contracts. In such a case you should check that the building that is constructed is the building that was contracted for. Where, say, a golden contract was made for an industrial estate, the contract may be changed into one for a large factory. A substantial change of this nature could result in an entirely new contract, which would be made at the time the changes are agreed. Enterprise zone treatment will not be available if this is after the zone has expired. Variation clauses in a contract may however permit considerable changes to be made without invalidating the contract. Small changes, which do not go to the root of the bargain between the parties, may also constitute a mere variation of the original contract. There are grey areas here and legal advice on the nature of the changes may be needed. Consult CT&VAT (Technical) in these cases.