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HMRC internal manual

Corporate Intangibles Research and Development Manual

Land Remediation Relief: Qualifying Land Remediation Expenditure: Subsidised expenditure - compensation

FA01/SCH22/PARA8

CTA09/S1177

Land Remediation Relief is not available where the cost of removing the contamination is covered by compensation received from a third party.

Example

A Ltd acquires a plot of land for development. It discovers that the site has been contaminated by chemicals being carried onto the site from an adjoining factory owned by B Ltd, an unconnected party.

A Ltd spends £150,000 on cleaning up the contamination and installing a barrier to prevent further contamination.

A Ltd seeks compensation from B Ltd. After negotiations B Ltd agrees to settle the claim in full.

A Ltd cannot claim Land Remediation Relief as all the expenditure has been met by B Ltd.

Example

A Ltd is considering acquiring a plot of land for development. It engages the services of Surveyor B, who advises that there is no contamination on the site.

On commencing work, A Ltd discovers that waste containing asbestos has been buried on the site and spends £100,000 on removing the asbestos.

A Ltd seeks compensation from Surveyor B. After negotiations A Ltd accepts an offer in settlement of £50,000.

A Ltd can only claim Land Remediation Relief on £50,000 of the total expenditure of £100,000 as the other £50,000 has been met by Surveyor B.

Example

A Ltd is considering acquiring a plot of land for development. It engages the services of Surveyor B, who advises that there is no contamination on the site.

On commencing work, A Ltd discovers that waste containing asbestos has been buried on the site and spends £100,000 on removing the asbestos.

A Ltd seeks compensation from Surveyor B. The negotiations are continuing when the accounts are prepared. Based on the position at the time the accounts are signed off, A Ltd deducts £75,000. A Ltd submits its return claiming LRR on £75,000. Subsequently A Ltd accepts an offer in settlement of £50,000.

A Ltd’s initial claim for LRR on £75,000 reflects the position at the time the claim was made, however the circumstances changed. This means that the claim has become excessive as following the agreement with Surveyor B, a further £25,000 has been met by Surveyor B.

A Ltd must revise its claim down so that it claims LRR on £50,000 instead of on £75,000.

The deduction in the accounts for £75,000 is unaffected as it reflects the position at the time the accounts were approved. The £25,000 received from Surveyor B will be reflected in the accounts for a later period.

If within the time limit for amending the return for the year of claim, A Ltd should submit an amended self-assessment. Otherwise HMRC can make a discovery assessment as the claim has become excessive.