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HMRC internal manual

Capital Allowances Manual

IBA: additional VAT: initial allowance

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. There are no IBA writing down allowances for the financial year beginning on 1 April 2011 and subsequent years.

A person who holds the relevant interest in an enterprise zone building may incur additional VAT in respect of qualifying enterprise zone expenditure. If that happens the additional VAT qualifies for enterprise zone allowance provided that the building qualified for enterprise zone allowance and the additional VAT is incurred during the life of the zone.

The person who incurs the additional VAT does not need to be the person who constructed the building and claimed enterprise zone allowance. The additional VAT qualifies for enterprise zone allowance no matter who incurred it provided that it is in respect of qualifying enterprise zone expenditure and was incurred during the life of the zone.

Example Stanley constructs a building in an enterprise zone during the life of the zone and claims enterprise zone allowance. Two years later he sells the building to Ken and the sale is treated as a transfer of a going concern for VAT purposes. Ken changes the use of the building and incurs an additional VAT liability in respect of the qualifying enterprise zone expenditure incurred by Stanley. If Ken incurs the additional VAT liability during the life of the zone he can claim initial allowances on it.