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Capital Allowances Act 2001

Type Public General Act

Publication 2001-03-22

Last updated 2026-03-18

State In force

Department Statute Law Database

Source legislation.gov.uk

articles Not indexed

Reform history JSON API

that person is to be treated, on and after that time, as the owner of the fixture as a result of incurring the expenditure.

(2) If there are two or more persons with different interests in the relevant land who would be treated as the owner of the same fixture as a result of subsection (1), one interest only is taken into account under that subsection.

(3) The interest to be taken into account is given by the following rules—

Rule 1

If one of the interests is an easement or servitude or any agreement to acquire an easement or servitude, that interest is the interest to be taken into account.

Rule 2

If Rule 1 does not apply, but one of the interests is a licence to occupy land, that interest is the interest to be taken into account.

Rule 3

In any other case—

(a) except in Scotland, the interest to be taken into account is the interest which is not in reversion (at law or in equity and whether directly or indirectly) on any other interest in the relevant land which is held by any of the persons referred to in subsection (2), and

(b) in Scotland, the interest to be taken into account is the interest of whichever of the persons referred to in subsection (2) has, or last had, the right of use of the relevant land.

(4) Subsection (1) is subject to sections 177(4) and 180A(4) .

Equipment lessors

177

(1) If—

(a) the conditions in—

(i) section 178 (equipment lessee has qualifying activity etc.),

(ii) section 179 (equipment lessor has right to sever fixture that is not part of building), or

(iii) section 180 (equipment lease is part of affordable warmth programme),

are met in relation to an equipment lease,

(b) the equipment lessor and the equipment lessee are not connected persons, and

the equipment lessor is to be treated, on and after the relevant time, as the owner of the fixture as a result of incurring the capital expenditure on the provision of the plant or machinery that is the subject of the equipment lease.

(2) The relevant time for the purposes of subsection (1) is (unless subsection (3) applies) the time when the equipment lessor incurs the expenditure.

(3) If—

(a) the conditions in section 178 are met in relation to an equipment lease (but the conditions in sections 179 and 180 are not), and

(b) the equipment lessor incurs the capital expenditure before the equipment lessee begins to carry on the qualifying activity,

the relevant time is the time when the equipment lessee begins to carry on the qualifying activity.

(4) If an election is made under this section, the equipment lessee is not to be treated under section 176 as the owner of the fixture.

(5) An election under this section must be made by notice to the an officer of Revenue and Customs—

(a) for income tax purposes, on or before the normal time limit for amending a tax return for the tax year in which the relevant chargeable period ends;

(b) for corporation tax purposes, no later than 2 years after the end of the relevant chargeable period.

(6) “The relevant chargeable period” means the chargeable period in which the capital expenditure was incurred.

Equipment lessee has qualifying activity etc.

178

The conditions referred to in section 177(1)(a)(i) are that—

(a) the equipment lease is for the lease of the plant or machinery for the purposes of a qualifying activity which is, or is to be, carried on by the equipment lessee,

(b) if the equipment lessee had incurred the capital expenditure incurred by the equipment lessor on the provision of the plant or machinery that is the subject of the equipment lease, he would, as a result of section 176, have been entitled to an allowance in respect of it, and

Equipment lessor has right to sever fixture that is not part of building

179

(1) The conditions referred to in section 177(1)(a)(ii) are that—

(a) the plant or machinery becomes a fixture by being fixed to land that is neither a building nor part of a building,

(b) the equipment lessee has an interest in the land when taking possession of the plant or machinery under the equipment lease,

(c) under the terms of the equipment lease, the equipment lessor is entitled to sever the plant or machinery, at the end of the period for which it is leased, from the land to which it is fixed at that time,

(d) under the terms of the equipment lease, the equipment lessor will own the plant or machinery on its severance in accordance with the equipment lease,

(e) the nature of the plant or machinery and the way in which it is fixed to land are such that its use on one set of premises does not, to any material extent, prevent it from being used, once severed, for the same purposes on a different set of premises,

(f) the equipment lease is one which under generally accepted accounting practice falls (or would fall) to be treated in the accounts of the equipment lessor as an operating lease, and

(g) the equipment lease is not for the lease of the plant or machinery for use in a dwelling-house.

(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Equipment lease is part of affordable warmth programme

180

(1) The conditions referred to in section 177(1)(a)(iii) are that—

(a) the plant or machinery which is the subject of the equipment lease consists of a boiler, heat exchanger, radiator or heating control that is installed in a building as part of a space or water heating system,

(b) the expenditure of the equipment lessor is incurred before 1st January 2008, and

(c) the equipment lease is approved for the purposes of this section as entered into as part of the affordable warmth programme.

(2) The approval mentioned in subsection (1)(c) may be given, with the consent of the Treasury—

(a) by the Secretary of State;

(b) in the case of buildings in Scotland, by the Scottish Ministers;

(d) in the case of buildings in Northern Ireland, by the Department for Social Development in Northern Ireland.

(3) If an approval is withdrawn, it is to be treated for the purposes of subsection (1)(c) as never having had effect.

Purchaser of land giving consideration for fixture

181

(1) If—

(a) after any plant or machinery has become a fixture, a person (“the purchaser”) acquires an interest in the relevant land,

(b) that interest was in existence before the purchaser’s acquisition of it, and

(c) the consideration which the purchaser gives for the interest is or includes a capital sum that, in whole or in part, falls to be treated for the purposes of this Part as expenditure on the provision of the fixture,

the purchaser is to be treated, on and after the time of the acquisition, as the owner of the fixture as a result of incurring that expenditure.

(2) Subsection (1) does not apply, and is to be treated as never having applied, if, immediately after the time of the acquisition, a person has a prior right in relation to the fixture.

(3) For the purposes of subsection (2), a person has a prior right in relation to the fixture if he—

(a) is treated as the owner of the fixture immediately before the time referred to in subsection (2) as a result of incurring expenditure on the provision of the fixture,

(b) is not so treated as a result of section 538 (contribution allowances for plant and machinery),

(d) makes or has made a claim in respect of that expenditure.

(4) Subsection (1) is subject to sections 182 and 182A .

Purchaser of land discharging obligations of equipment lessee

182

(1) If—

(a) after any plant or machinery has become a fixture, a person (“the purchaser”) acquires an interest in the relevant land,

(b) that interest was in existence before the purchaser’s acquisition of it,

(d) in connection with that acquisition, the purchaser pays a capital sum to discharge the obligations of the equipment lessee under the equipment lease,

the purchaser is to be treated, on and after the time of the acquisition, as the owner of the fixture as a result of incurring expenditure, consisting of that capital sum, on the provision of the fixture.

(2) Subsection (1) does not apply, and is to be treated as never having applied, if, immediately after the time of the acquisition, a person has a prior right in relation to the fixture.

(3) Section 181(3)(test for whether person has a prior right) applies for the purposes of subsection (2).

Incoming lessee where lessor entitled to allowances

183

(1) If—

(a) after any plant or machinery has become a fixture, a person (“the lessor”) who has an interest in the relevant land grants a lease,

(b) the lessor is entitled to an allowance in respect of the fixture for the chargeable period in which the lease is granted or would be if he were within the charge to tax,

(c) the consideration which the lessee gives for the lease is or includes a capital sum that, in whole or in part, falls to be treated for the purposes of this Part as expenditure on the provision of the fixture,

(d) the lessor and the lessee are not connected persons, and

(e) the lessor and the lessee make an election under this section,

the lessee is to be treated, on and after the time when the lease is granted, as the owner of the fixture as a result of incurring that expenditure.

(2) An election under this section must be made by notice to an officer of Revenue and Customs within 2 years after the date on which the lease takes effect.

Incoming lessee where lessor not entitled to allowances

184

(1) If—

(a) after any plant or machinery has become a fixture, a person (“the lessor”) who has an interest in the relevant land grants a lease,

(b) the lessor is not within section 183(1)(b),

(c) before the lease is granted, the fixture has not been used for the purposes of a qualifying activity carried on by the lessor or any person connected with the lessor, and

(d) the consideration which the lessee gives for the lease is or includes a capital sum that, in whole or in part, falls to be treated for the purposes of this Part as expenditure on the provision of the fixture,

the lessee is to be treated, on and after the time when the lease is granted, as the owner of the fixture as a result of incurring that expenditure.

(2) Subsection (1) does not apply, and is to be treated as never having applied, if, immediately after the time when the lease is granted, a person has a prior right in relation to the fixture.

(3) Section 181(3)(test for whether person has a prior right) applies for the purposes of subsection (2).

Restrictions on amount of qualifying expenditure

Fixture on which a plant and machinery allowance has been claimed

185

(1) This section applies if—

(a) a person (“the current owner”) is treated as the owner of a fixture as a result of incurring capital expenditure (“new expenditure”) on its provision,

(b) the plant or machinery is treated as having been owned at a relevant earlier time by any person (“the past owner”) as a result of incurring other expenditure,

(c) the plant or machinery is within paragraph (b) otherwise than as a result of section 538 (contribution allowances for plant and machinery), and

(d) the past owner is or has been required to bring the disposal value of the plant or machinery into account (as a result of having made a claim in respect of that other expenditure).

(2) If the new expenditure exceeds the maximum allowable amount, the excess—

(a) is to be left out of account in determining the current owner’s qualifying expenditure, or

(b) if the new expenditure has already been taken into account for this purpose, is to be treated as expenditure that should never have been taken into account.

(3) The maximum allowable amount is—

$$D+I$where—D is the disposal value of the plant or machinery which the past owner has been or is required to bring into account, andI is any of the new expenditure that is treated under section 25 (building alterations in connection with installation) as expenditure on the provision of the plant or machinery.$

(4) If more than one disposal event has occurred requiring the past owner to bring the disposal value of the plant or machinery into account, the maximum allowable amount is calculated by reference only to the most recent of those events.

(5) For the purposes of this section, the current owner and the past owner may be the same person.

(6) In subsection (1)(b) “relevant earlier time” means (subject to subsection (7)) any time before the earliest time when the current owner is treated as owning the plant or machinery as a result of incurring the new expenditure.

(7) If, before the earliest time when the current owner is treated as owning the plant or machinery as a result of incurring the new expenditure—

(a) any person has ceased to own the plant or machinery as a result of a sale,

(b) the sale was not a sale of the plant or machinery as a fixture, and

the relevant earlier time does not include any time before the seller ceased to own the plant or machinery.

Fixture on which an industrial buildings allowance has been made

186

(1) This section applies if—

(a) a person (“the past owner”) has at any time claimed an allowance to which he was entitled under Part 3 (industrial buildings allowances) in respect of expenditure which was or included expenditure on the provision of plant or machinery,

(b) the past owner has transferred the interest which was the relevant interest for the purposes of Part 3, and

(i) on the provision of the plant or machinery, and

(ii) at a time when it is a fixture in the building.

(2) If the new expenditure exceeds the maximum allowable amount, the excess is to be left out of account in determining the current owner’s qualifying expenditure.

(3) If the total consideration for the transfer by the past owner exceeds R, the maximum allowable amount is—

$$FTxR$where—F is the part of the consideration for the transfer by the past owner that is attributable to the fixture,T is the total consideration for that transfer, andR is the residue of qualifying expenditure which would have been attributable to the relevant interest immediately after that transfer, calculated on the assumption that the transfer was a sale of the relevant interest, had the time immediately after the transfer fallen immediately before the repeal of Part 3 by section 84 of FA 2008.$

(3A) Where subsection (3) does not apply, the maximum allowable amount is the part of the consideration for the transfer by the past owner that is attributable to the fixture.

(4) For the purposes of this section the current owner of the plant or machinery is—

(a) the person to whom the past owner transferred the relevant interest, or

(b) any person who is subsequently treated as the owner of the plant or machinery.

(5) In this section “building” and “residue of qualifying expenditure” have the same meaning as for the purposes of Part 3 immediately before its repeal by section 84 of FA 2008.

Fixture on which a research and development allowance has been made

187

(1) This section applies if—

(a) a person has at any time claimed an allowance to which he is entitled under Part 6 (research and development allowances) in respect of qualifying expenditure under that Part (“Part 6 expenditure”),

(b) an asset representing the whole or part of the Part 6 expenditure (“the Part 6 asset”) has ceased to be owned by that person (“the past owner”),

(d) the current owner makes a claim under this Part in respect of expenditure (“new expenditure”) incurred—

(i) on the provision of the plant or machinery, and

(ii) at a time when it is a fixture.

(2) If the new expenditure exceeds the maximum allowable amount, the excess is to be left out of account in determining the current owner’s qualifying expenditure.

(3) The maximum allowable amount is—

$$FTxA$where—F is the part of the consideration for the disposal of the Part 6 asset by the past owner that is attributable to the fixture,T is the total consideration for that disposal, andA is an amount equal to whichever is the smaller of—the disposal value of the Part 6 asset when the past owner ceased to own it, andso much of the Part 6 expenditure as related to the provision of the Part 6 asset.$

(4) For the purposes of this section the current owner of the plant or machinery is—

(a) the person who acquired the Part 6 asset from the past owner, or

(b) any person who is subsequently treated as the owner of the plant or machinery.

Cessation of ownership of fixtures

Cessation of ownership when person ceases to have qualifying interest

188

(1) This section applies if a person is treated as the owner of a fixture under—

(a) section 176 (person with interest in land having fixture for purposes of qualifying activity),

(b) section 181 (purchaser of land giving consideration for fixture),

(ca) section 182A (purchaser of land discharging obligations of client under energy services agreement),

(d) section 183 (incoming lessee where lessor entitled to allowances), or

(e) section 184 (incoming lessee where lessor not entitled to allowances).

(2) If the person ceases at any time to have the qualifying interest, he is to be treated as ceasing to be the owner of the fixture at that time.

(3) In this Chapter “the qualifying interest” means—

(a) if section 176, 181 , 182 or 182A applies, the interest in the relevant land referred to in that section, and

(b) if section 183 or 184 applies, the lease referred to in that section.

(4) This section is subject to section 189.

Identifying the qualifying interest in special cases

189

(1) If—

(a) a person’s qualifying interest is an agreement to acquire an interest in land, and

(b) that interest is subsequently transferred or granted to that person,

the interest transferred or granted is to be treated as the qualifying interest.

(2) If a person’s qualifying interest ceases to exist as a result of its being merged in another interest acquired by that person, that other interest is to be treated as the qualifying interest.

(3) If—

(a) the qualifying interest is a lease, and

(b) on its termination, a new lease of the relevant land (with or without other land) is granted to the lessee,

the new lease is to be treated as the qualifying interest.

(4) If—

(a) the qualifying interest is a licence, and

(b) on its termination, a new licence to occupy the relevant land (with or without other land) is granted to the licensee,

the new licence is to be treated as the qualifying interest.

(5) If—

(a) the qualifying interest is a lease, and

(b) with the consent of the lessor, the lessee remains in possession of the relevant land after the termination of the lease without a new lease being granted to him,

the qualifying interest is to be treated as continuing so long as the lessee remains in possession of the relevant land.

Cessation of ownership of lessor where section 183 applies

190

(1) This section applies if a lessee is treated under section 183 (incoming lessee where lessor entitled to allowances) as the owner of a fixture.

(2) The lessor is to be treated as ceasing to be the owner of the fixture when the lessee begins to be treated as the owner.

Cessation of ownership on severance of fixture

191

If—

(a) a person is treated as the owner of the fixture as a result of any provision of this Chapter,

(b) the fixture is permanently severed from the relevant land (so that it ceases to be a fixture), and

that person is to be treated as ceasing to be the owner of the fixture when it is severed.

Cessation of ownership of equipment lessor

192

(1) This section applies if an equipment lessor is treated under section 177 as the owner of a fixture.

(2) If—

(a) the equipment lessor at any time assigns his rights under the equipment lease, or

(b) the financial obligations of the equipment lessee under an equipment lease are at any time discharged (on the payment of a capital sum or otherwise),

the equipment lessor is to be treated as ceasing to be the owner of the fixture at that time (or, as the case may be, at the earliest of those times).

(3) The reference in subsection (2)(b) to the equipment lessee is, in a case where the financial obligations of the equipment lessee have become vested in another person (by assignment, operation of law or otherwise), a reference to the person in whom the obligations are vested when the capital sum is paid.

Acquisition of ownership of fixture when another ceases to own it

Acquisition of ownership by lessor or licensor on termination of lease or licence

193

If, on the termination of a lease or licence, the outgoing lessee or licensee is treated under section 188 as ceasing to be the owner of a fixture, the lessor or licensor is to be treated, on and after the termination of the lease or licence, as the owner of the fixture.

Acquisition of ownership by assignee of equipment lessor

194

(1) If section 192(2)(a) applies (cessation of ownership of equipment lessor as a result of assignment), the assignee is to be treated, on and after the assignment—

(a) as having incurred expenditure, consisting of the consideration given by him for the assignment, on the provision of the fixture, and

(b) as being the owner of the fixture.

(2) For the purposes of section 192 (and subsection (1) and section 195) the assignee is to be treated as being an equipment lessor who owns the fixture under section 177.

Acquisition of ownership by equipment lessee

195

(1) If section 192(2)(b) applies (discharge of obligations of equipment lessee) because the equipment lessee has paid a capital sum, the equipment lessee is to be treated—

(a) as having incurred expenditure, consisting of the capital sum, on the provision of the fixture, and

(b) as being, on and after the time of payment, the owner of the fixture.

(2) Section 192(3) (assignee of equipment lessee) applies in relation to subsection (1).

Disposal values

Disposal values in relation to fixtures: general

196

(1) The disposal value to be brought into account in relation to a fixture depends on the nature of the disposal event, as shown in the Table—

1. Disposal event	2. Disposal value
1. Cessation of ownership of the fixture under section 188 because of a sale of the qualifying interest except where item 2 applies.	The part of the sale price that—falls to be treated for the purposes of this Part as expenditure incurred by the purchaser on the provision of the fixture, orwould fall to be so treated if the purchaser were entitled to an allowance.
2. Cessation of ownership of the fixture under section 188 because of a sale of the qualifying interest where—the sale is at less than market value, andthe condition in subsection (2) is met by the purchaser.	The part of the price that would be treated for the purposes of this Part as expenditure by the purchaser on the provision of the fixture if—the qualifying interest were sold at market value,that sale took place immediately before the event which causes the former owner to be treated as ceasing to be the owner of the fixture, andthat event were disregarded in determining that market value.
3. Cessation of ownership of the fixture under section 188 where—neither item 1 nor 2 applies, butthe qualifying interest continues in existence after that time or would so continue but for its becoming merged in another interest.	The disposal value given for item 2.
4. Cessation of ownership of the fixture under section 188 because of the expiry of the qualifying interest.	If the person receives a capital sum, by way of compensation or otherwise, by reference to the fixture, the amount of the capital sum.In any other case, nil.
5. Cessation of ownership of the fixture under section 190 because the lessee has become the owner under section 183.	The part of the capital sum given by the lessee for the lease referred to in section 183 that falls to be treated for the purposes of this Part as the lessee’s expenditure on the provision of the fixture.
6. Cessation of ownership of the fixture under section 191 (severance).	The market value of the fixture at the time of the severance.
7. Cessation of ownership of the fixture because section 192(2)(a) (assignment of rights) applies.	The consideration given by the assignee for the assignment.
8. Cessation of ownership of the fixture because section 192(2)(b) (discharge of equipment lessee’s obligations) applies on the payment of a capital sum.	The capital sum paid to discharge the financial obligations of the equipment lessee.
8A. Cessation of ownership of the fixture because section 192A(2)(a)(assignment of rights) applies.	The consideration given by the assignee for the assignment.
8B. Cessation of ownership of the fixture because section 192A(2)(b) (discharge of client’s obligations) applies on the payment of a capital sum.	The capital sum paid to discharge the financial obligations of the client.
9. Permanent discontinuance of the qualifying activity followed by the sale of the qualifying interest.	The part of the sale price that—falls to be treated as expenditure incurred by the purchaser on the provision of the fixture, orwould fall to be so treated if the purchaser were entitled to an allowance.
10. Permanent discontinuance of the qualifying activity followed by the demolition or destruction of the fixture.	The net amount received for the remains of the fixture, together with—any insurance money received in respect of the demolition or destruction, andany other compensation of any description so received, so far as it consists of capital sums.
11. Permanent discontinuance of the qualifying activity followed by the permanent loss of the fixture otherwise than as a result of its demolition or destruction.	Any insurance money received in respect of the loss and, so far as it consists of capital sums, any other compensation of any description so received.
12. The fixture begins to be used wholly or partly for purposes other than those of the qualifying activity.	The part of the price that would fall to be treated for the purposes of this Part as expenditure incurred by the purchaser on the provision of the fixture if the qualifying interest were sold at market value.

(2) The condition referred to in item 2 of the Table is met by the purchaser if—

(a) the purchaser’s expenditure on the provision of the fixture cannot be qualifying expenditure under this Part or Part 6 (research and development allowances), or

(b) the purchaser is a dual resident investing company which is connected with the former owner.

(3) Items 1 and 5 of the Table are subject to sections 198 and 199 (election to fix apportionment on sale of qualifying interest or grant of lease).

(4) Section 192(3) (assignee of equipment lessee) applies in relation to item 8 of the Table.

(4A) Section 192A(3)(assignee of client) applies in relation to item 8B of the Table.

(5) Nothing in sections 188 to 192A or this section prevents a disposal value having to be brought into account under Chapter 5 because of a disposal event not dealt with in these sections.

(6) This section is subject to section 197.

Disposal values in avoidance cases

197

(1) This section applies if—

(a) a person (“the taxpayer”) is treated under this Chapter as the owner of any plant or machinery as a result of incurring any expenditure,

(b) any disposal event occurs in relation to the plant or machinery,

(c) the disposal value to be brought into account by the taxpayer would (but for this section) be less than the notional written-down value of the plant or machinery, and

(d) the disposal event is part of, or occurs as a result of, a scheme or arrangement the main purpose or one of the main purposes of which is the obtaining by the taxpayer of a tax advantage under this Part.

(2) The disposal value that the taxpayer must bring into account is the notional written-down value of the plant or machinery.

(3) The notional written-down value is—

$$QE-A$where—QE is the taxpayer’s expenditure on the plant or machinery that is qualifying expenditure,A is the total of all allowances which could have been made to the taxpayer in respect of that expenditure if—that expenditure had been the only expenditure that had ever been taken into account in determining his available qualifying expenditure, andall allowances had been made in full.$

Election to fix apportionment

Election to apportion sale price on sale of qualifying interest

198

(1) This section applies if the disposal value of a fixture is required to be brought into account in accordance with item 1 or 9 of the Table in section 196 (sale of qualifying interest at not less than market value, etc.).

(2) The seller and the purchaser may jointly, by an election, fix the amount that is to be treated—

(a) for the purposes of item 1 or (as the case may be) 9 of the Table, and

(b) for the other purposes of this Part,

as the part of the sale price that is expenditure incurred by the purchaser on the provision of the fixture.

(3) The amount fixed by the election must not exceed—

(a) the amount of the capital expenditure which was treated as incurred by the seller on the provision of the fixture or of the plant or machinery which became the fixture, or

(b) the actual sale price.

(4) If an election fixes the amount to be treated as the part of the sale price—

(a) the remaining amount (if any) of the sale price is to be treated for the purposes of this Act as expenditure attributable to the acquisition of the property which is not the fixture but is acquired for that amount, and

(b) if there is no remaining amount, the expenditure so attributable is to be treated for the purposes of this Act as nil.

(5) This section is subject to—

(a) sections 186, 186A and 187 (fixtures on which industrial buildings allowance, business premises renovation allowance or research and development allowance has been made),

(b) section 197 (disposal values in avoidance cases), and

Election to apportion capital sum given by lessee on grant of lease

199

(1) This section applies if the disposal value of a fixture is required to be brought into account in accordance with item 5 of the Table in section 196 (on acquisition of ownership by incoming lessee under section 183).

(2) The persons who are the lessor and the lessee for the purposes of section 183 may jointly, by an election, fix the amount that is to be treated—

(a) for the purposes of item 5 of the Table, and

(b) for the other purposes of this Part,

as the part of the capital sum that is expenditure incurred by the lessee on the provision of the fixture.

(3) The amount fixed by the election must not exceed—

(a) the amount of the capital expenditure which was treated as incurred by the lessor on the provision of the fixture or of the plant or machinery which became the fixture, or

(b) the actual capital sum.

(4) If an election fixes the amount to be treated as the part of the capital sum—

(a) the remaining amount (if any) of the capital sum is to be treated for the purposes of this Act as expenditure attributable to the acquisition of the property which is not the fixture but is acquired for that amount, and

(b) if there is no remaining amount, the expenditure so attributable is to be treated for the purposes of this Act as nil.

(5) This section is subject to—

(a) sections 186, 186A and 187 (fixtures on which industrial buildings allowance, business premises renovation allowance or research and development allowance has been made),

(b) section 197 (disposal values in avoidance cases), and

Elections under sections 198 and 199: supplementary

200

(1) In this section and section 201, references to an election are to an election under section 198 or 199.

(2) An apportionment made by an election has effect in place of any apportionment that would otherwise be made under sections 562, 563 and 564(1) (apportionment and procedure for determining apportionment).

(3) An election is irrevocable.

(4) If, as a result of circumstances arising after the making of an election, the maximum amount which could be fixed by the election is reduced to an amount which is less than the amount specified in the election, the election is to be treated, for the purposes of this Act, as having specified the amount to which the maximum is reduced.

Elections under sections 198 and 199: procedure

201

(1) An election must be made by notice to an officer of Revenue and Customs no later than 2 years after the date when—

(a) the purchaser acquires the qualifying interest, in the case of an election under section 198, or

(b) the lessee is granted the lease, in the case of an election under section 199.

But this is subject to subsection (1A).

(1A) Where—

(a) the requirement of subsection (6) of section 187A (effect of changes in ownership of fixture: fixed value requirement) applies, or may in future apply by reason of a person being required to bring the disposal value of plant and machinery into account in accordance with item 1, 5 or 9 of the Table in section 196,

(b) an application is made to the tribunal for the purposes of section 187A(7)(a), and

subsection (1) does not apply and an election within section 187A(7)(b) may be made by notice to an officer of Revenue and Customs at any time before the tribunal determines the application or the application is withdrawn.

(2) The amount fixed by an election must be quantified at the time when the election is made.

(3) The notice must state—

(a) the amount fixed by the election,

(b) the name of each of the persons making the election,

(d) information sufficient to identify the relevant land,

(e) particulars of—

(i) the interest acquired by the purchaser, in the case of an election under section 198, or

(ii) the lease granted to the lessee, in the case of an election under section 199, and

(f) in relation to each of the persons making the election—

(i) that person's Unique Taxpayer Reference, or

(ii) that the person does not have a Unique Taxpayer Reference.

(4) If a person—

(a) has joined in making an election, and

(b) subsequently makes a tax return for a period which is the first period for which he is making a tax return in which the election has an effect for tax purposes in his case,

a copy of the notice containing the election must accompany the return.

(5) The following provisions do not apply to the election—

(a) section 42 of, and Schedule 1A to, TMA 1970 (claims and elections for income tax purposes);

(b) paragraphs 54 to 60 of Schedule 18 to FA 1998 (claims and elections for corporation tax purposes).

(6) References in this section to a tax return, in the case of an election for the purposes of a trade, profession or business carried on by persons in partnership, are to be read, in relation to those persons, as references to a return under section 12AA of TMA 1970 (partnership returns).

Further provisions

Interpretation

202

(1) Any reference in this Chapter to a person being entitled to an allowance in respect of expenditure on the provision of a fixture includes the person having a pool to which expenditure on the provision of the fixture has been allocated.

But this is subject to subsection (2).

(2) If—

(a) expenditure on the provision of the fixture has been allocated to a pool, and

(b) the person is required under section 61(1) to bring the disposal value of the fixture into account in the pool,

the person is not entitled to an allowance in respect of the expenditure allocated to that pool for any chargeable period after that in which the disposal event occurs.

(3) For the purposes of this Chapter, a person makes a claim in respect of expenditure if he—

(a) makes a claim for an allowance in respect of that expenditure,

(b) makes a tax return in which that expenditure is taken into account in determining his available qualifying expenditure for the purposes of this Part, or

Amendment of returns etc.

203

(1) If a person who has made a tax return (“the taxpayer”) becomes aware that, after making it, anything in it has become incorrect for any of the reasons given in subsection (2), the taxpayer must give notice to an officer of Revenue and Customs specifying how the return needs to be amended.

(2) The reasons are that—

(a) an approval given for the purposes of section 180 (affordable warmth programme) has been withdrawn;

(b) section 181(2), 182(2) , 182A(2) or 184(2) (another person has a prior right) applies in the taxpayer’s case;

(c) section 185 (restriction on qualifying expenditure where another person has claimed an allowance) applies in the taxpayer’s case;

(d) an election is made under section 198 or 199 (election to fix apportionment);

(e) section 200(4) (reduction in amount which can be fixed by an election) applies in the taxpayer’s case.

(3) The notice must be given within 3 months beginning with the day on which the taxpayer first became aware that anything contained in the tax return had become incorrect for any of the reasons given in subsection (2).

(4) All such assessments and adjustments of assessments are to be made as are necessary to give effect to this Chapter.

Appeals etc.

204

(1) Subsections (2) and (3) apply if—

(a) any question arises as to whether any plant or machinery has become, in law, part of a building or other land, and

(b) that question is material to the tax liability (for whatever period) of two or more persons.

(2) The question is to be determined, for the purposes of the tax of all the persons concerned, by the tribunal.

(3) An application for the tribunal to determine the question is to be subject to the relevant provisions of Part 5 of the Taxes Management Act 1970 (see, in particular, section 48(2)(b) of that Act), and each of the persons concerned is entitled to be a party to the proceedings on the application.

(4) Subsections (5) and (6) apply if any question relating to an election under section 198 or 199 (apportionments) arises for determination by the tribunal for the purposes of any proceedings before it.

(5) The tribunal must determine the question separately from any other questions in those proceedings.

(6) Each of the persons who has joined in the election is entitled to be a party to the proceedings of the tribunal concerned with the determination of the question; and the tribunal’s determination has effect as if made in an appeal to which each of those persons was a party.

Chapter 15 — Asset provided or used only partly for qualifying activity

Reduction of first-year allowances

205

(1) If it appears that a person carrying on a qualifying activity has incurred expenditure on the provision of plant or machinery—

(a) partly for the purposes of the qualifying activity, and

(b) partly for other purposes,

any annual investment allowance or first-year allowance to which he is entitled in respect of the expenditure must be reduced to an amount which is just and reasonable having regard to the relevant circumstances.

(2) The relevant circumstances include, in particular, the extent to which it appears that the plant or machinery is likely to be used for purposes other than those of the qualifying activity in question.

(3) In calculating for the purposes of section 58 the balance left after deducting a first-year allowance, a reduction under subsection (1) is to be disregarded.

Single asset pool etc.

206

(1) Qualifying expenditure to which this subsection applies, if allocated to a pool, must be allocated to a single asset pool.

(2) Subsection (1) applies to qualifying expenditure incurred by a person carrying on a qualifying activity—

(a) partly for the purposes of the qualifying activity, and

(b) partly for other purposes.

(3) If a person is required to bring a disposal value into account in a pool for a chargeable period because the plant or machinery begins to be used partly for purposes other than those of the qualifying activity, an amount equal to that disposal value is allocated (as expenditure on the plant or machinery) to a single asset pool for that chargeable period.

(4) In the case of a single asset pool under subsection (1), there is no final chargeable period or disposal event merely because the plant or machinery begins to be used partly for purposes other than those of the qualifying activity.

Reduction of allowances and charges on expenditure in single asset pool

207

(1) This section applies if a person’s expenditure is in a single asset pool under section 206(1) or (3).

(2) The amount of—

(a) any writing-down allowance or balancing allowance to which the person is entitled, or

(b) any balancing charge to which the person is liable,

must be reduced to an amount which is just and reasonable having regard to the relevant circumstances.

(3) The relevant circumstances include, in particular, the extent to which it appears that the plant or machinery was used in the chargeable period in question for purposes other than those of the person’s qualifying activity.

(4) In calculating under section 59 the amount of unrelieved qualifying expenditure carried forward, a reduction of a writing-down allowance under subsection (2) is to be disregarded.

(5) If a person entitled to a writing-down allowance for a chargeable period—

(a) does not claim the allowance, or

(b) claims less than the full amount of the allowance,

the unrelieved qualifying expenditure carried forward from the period is to be treated as not reduced or (as the case may be) only proportionately reduced.

Effect of significant reduction in use for purposes of qualifying activity

208

(1) This section applies if—

(a) expenditure is allocated to a single asset pool under this Chapter,

(b) there is such a change of circumstances as would make it appropriate for any reduction falling to be made under section 207—

(i) for the chargeable period in which the change takes place (“the relevant chargeable period”), or

(ii) for any subsequent chargeable period,

to represent a larger proportion of the amount reduced than would have been appropriate apart from the change,

(c) no disposal value in respect of the plant or machinery would, apart from this section, fall to be brought into account for the relevant chargeable period, and

(d) the market value of the plant or machinery at the end of the relevant chargeable period exceeds the available qualifying expenditure in that pool for that period by more than £1 million.

(2) If this section applies—

(a) a disposal value is required to be brought into account in the single asset pool for the relevant chargeable period, and

(b) section 206 applies as if, at the beginning of the following chargeable period, expenditure had been incurred on the provision of the plant or machinery of an amount equal to the disposal value brought into account as a result of paragraph (a).

Chapter 16 — Partial depreciation subsidies

Meaning of “partial depreciation subsidy”

209

In this Chapter “partial depreciation subsidy” means a sum which—

(a) is payable directly or indirectly to a person who has incurred qualifying expenditure for the purposes of a qualifying activity,

(b) is in respect of, or takes account of, part of the depreciation of the plant or machinery resulting from its use for the purposes of that activity, and

(c) does not fall to be taken into account as income of that person or in calculating the profits of any qualifying activity carried on by him.

Reduction of first-year allowances

210

(1) If—

(a) a person has incurred qualifying expenditure for the purposes of a qualifying activity carried on by him, and

(b) it appears that a partial depreciation subsidy is, or will be, payable to him in the period during which the plant or machinery will be used for the purposes of that qualifying activity,

the amount of any annual investment allowance or first-year allowance in respect of that expenditure must be reduced to an amount which is just and reasonable having regard to the relevant circumstances.

(2) In calculating for the purposes of section 58 the balance left after deducting a first-year allowance, a reduction under subsection (1) is to be disregarded.

Single asset pool etc.

211

(1) Qualifying expenditure to which this subsection applies, if allocated to a pool, must be allocated to a single asset pool.

(2) Subsection (1) applies to qualifying expenditure if a partial depreciation subsidy relating to the plant or machinery has been paid to the person who incurred the expenditure.

(3) Subsection (4) applies if—

(a) qualifying expenditure has been allocated to a pool, and

(b) a partial depreciation subsidy relating to the plant or machinery is paid to that person.

(4) For the chargeable period in which the partial depreciation subsidy is paid—

(a) the person is required to bring a disposal value into account in the pool referred to in subsection (3), and

(b) an amount equal to the disposal value is allocated (as expenditure on the plant or machinery) to a single asset pool.

(5) If qualifying expenditure in respect of any plant or machinery is in a single asset pool under this section, there is no further allocation of that qualifying expenditure because a further partial depreciation subsidy is paid in respect of that plant or machinery.

Reduction of allowances and charges on expenditure in single asset pool

212

(1) This section applies if expenditure is in a single asset pool under section 211(1) or (4).

(2) The amount of—

(a) any writing-down allowance or balancing allowance to which the person is entitled, or

(b) any balancing charge to which the person is liable,

must be reduced to an amount which is just and reasonable having regard to the relevant circumstances.

(3) In calculating under section 59 the amount of unrelieved qualifying expenditure carried forward, a reduction of a writing-down allowance under subsection (2) is to be disregarded.

(4) If a person entitled to a writing-down allowance for a chargeable period—

(a) does not claim the allowance, or

(b) claims less than the full amount of the allowance,

the unrelieved qualifying expenditure carried forward from the period is to be treated as not reduced or (as the case may be) only proportionately reduced.

Chapter 17 — Other anti-avoidance

Relevant transactions

Relevant transactions: sale, hire-purchase (etc.) and assignment

213

(1) For the purposes of this Chapter, a person (“B”) and another person (“S”) enter into a relevant transaction if—

(a) S sells plant or machinery to B,

(b) B enters into a contract with S providing that B shall or may become the owner of plant or machinery on the performance of the contract, or

(c) S assigns to B the benefit of a contract providing that S shall or may become the owner of plant or machinery on the performance of the contract.

(2) For the purposes of this Chapter, references to B’s expenditure under a relevant transaction are references—

(a) in the case of a sale within subsection (1)(a), to B’s capital expenditure on the provision of the plant or machinery by purchase,

(b) in the case of a contract within subsection (1)(b), to B’s capital expenditure under the contract so far as it relates to the plant or machinery, or

(c) in the case of an assignment within subsection (1)(c), to B’s capital expenditure under the contract so far as it relates to the plant or machinery or is by way of consideration for the assignment.

(3) If—

(a) B is treated under section 14 (use for qualifying activity of plant or machinery which is a gift) as having incurred capital expenditure on the provision of plant or machinery, and

(b) the donor of the plant or machinery was S,

B is to be treated for the purposes of this Chapter as having incurred capital expenditure on the provision of the plant or machinery by purchasing it from S.

(4) For the purposes of this Chapter, references to the disposal value of the plant or machinery under a relevant transaction are references to the disposal value that is to be brought into account by S as a result of the sale, contract or assignment in question.

Restrictions on allowances

Connected persons

214

Allowances under this Part are restricted under sections 217 and 218 (or, as the case may be, 218ZA(3)) if—

(a) B enters into a relevant transaction with S, and

(b) B and S are connected with each other.

Transactions to obtain allowances

215

(1) Allowances under this Part are restricted, and balancing charges are imposed or increased, under the applicable sections if B and S enter into a relevant transaction that either—

(a) has an avoidance purpose, or

(b) is part of, or occurs as a result of, a scheme or arrangement that has an avoidance purpose.

(2) Subsection (1)(b) may be satisfied—

(a) whether the scheme or arrangement was made before or after the relevant transaction was entered into, and

(b) whether or not the scheme or arrangement is legally enforceable.

(3) A transaction, scheme or arrangement has an “avoidance purpose” if the main purpose, or one of the main purposes, of a party in entering into the transaction, scheme or arrangement is to enable a person to obtain a tax advantage under this Part that would not otherwise be obtained.

(4) The reference in subsection (3) to obtaining a tax advantage that would not otherwise be obtained includes—

(a) obtaining an allowance that is in any way more favourable to a person than the one that would otherwise be obtained, and

(b) avoiding liability for the whole or part of a balancing charge to which a person would otherwise be liable.

(4A) If the tax advantage relates to the disposal value of the plant or machinery under the relevant transaction (whether by obtaining a more favourable allowance or by avoiding the whole or part of a balancing charge) then—

(a) the applicable section is section 218ZB, and

(b) the tax advantage is to be disregarded for the purposes of subsection (6) and (8)(b).

(5) If the tax advantage is of a kind described in subsection (7), “the applicable sections” are sections 217 and 218ZA(5).

(6) Otherwise, “the applicable sections” are sections 217 and 218ZA(1) or, as the case may be, 218ZA(3).

(7) The kinds of tax advantage are—

(a) that an allowance to which B is entitled for a chargeable period is calculated using a percentage rate that is higher than the one that would otherwise be used, or

(b) that B is entitled to an allowance in respect of an amount of capital expenditure sooner than B would otherwise be entitled to it.

(8) If a transaction, scheme or arrangement involves—

(a) a tax advantage of a kind described in subsection (7), and

(b) a tax advantage not of such a kind,

subsections (5) and (6) have effect separately in relation to each tax advantage.

Sale and leaseback, etc.

216

(1) Allowances under this Part are restricted under sections 217 and 218 (or, as the case may be, 218ZA(3)) if—

(a) B enters into a relevant transaction with S, and

(b) the plant or machinery—

(i) continues to be used for the purposes of a qualifying activity carried on by S or by a person (other than B) who is connected with S, or

(ii) is used after the date of the transaction for the purposes of a qualifying activity carried on by S or by a person (other than B) who is connected with S, without having been used since that date for the purposes of any other qualifying activity except that of leasing the plant or machinery.

(2) In this section—

“the date of the transaction” means the date of the sale, the making of the contract or the assignment referred to in section 213(1)(a) to (c), and

“qualifying activity” includes any activity listed in section 15(1) even if any profits or gains from it are not chargeable to tax.

No first-year allowance for B’s expenditure

217

(1) If this section applies as a result of section 214, 215 or 216, no annual investment allowance or first-year allowance is to be made in respect of B’s expenditure under the relevant transaction.

(2) Any annual investment allowance or first-year allowance which is prohibited by subsection (1), but which has already been made, is to be withdrawn.

(3) This section does not apply if plant or machinery is the subject of a sale and finance leaseback (as defined in section 221).

Restriction on B’s qualifying expenditure

218

(1) If this section applies as a result of section 214 or 216, the amount, if any, by which B’s expenditure under the relevant transaction exceeds D is to be left out of account in determining B’s available qualifying expenditure.

D is defined in subsections (2), (2A) and (3).

(2) If S is required to bring a disposal value into account under this Part because of the relevant transaction, D is that disposal value.

(2A) D is nil if—

(a) S is not required to bring a disposal value into account under this Part because of the relevant transaction, and

(b) at any time before that transaction S or a linked person became owner of the plant or machinery without incurring either capital expenditure or qualifying revenue expenditure on its provision.

(3) Otherwise, D is whichever of the following is the smallest—

(a) the market value of the plant or machinery;

(b) if S incurred capital expenditure on the provision of the plant or machinery, the amount of that expenditure;

(c) if a person connected with S incurred capital expenditure on the provision of the plant or machinery, the amount of that expenditure.

(3A) “Linked person”, in relation to plant or machinery, means a person—

(a) who owned the plant or machinery at any time before the relevant transaction, and

(b) who was connected with S at any time between—

(i) the time when the person became owner of the plant or machinery, and

(ii) the time of the relevant transaction.

(3B) Expenditure on the provision of plant or machinery is “qualifying revenue expenditure” if it is expenditure of a revenue nature—

(a) that is at least equal to the amount of expenditure that would reasonably be expected to have been incurred on the provision of the plant or machinery in a transaction between persons dealing with each other at arm's length in the open market, or

(b) that is incurred by the manufacturer of the plant or machinery and is at least equal to the amount that it would have been reasonable to expect to have been the normal cost of manufacturing the plant or machinery.

(4) This section does not apply if plant or machinery is the subject of a sale and finance leaseback (as defined in section 221), but see section 225.

(5) This section is subject to section 218ZA(3).

Finance leases and certain operating leases

Meaning of “finance lease”

219

(1) In this Chapter “finance lease” means any arrangements—

(a) which provide for plant or machinery to be leased or otherwise made available by a person (“the lessor”) to another person (“the lessee”), and

(b) which, under generally accepted accounting practice—

(i) fall (or would fall) to be treated, in the accounts of the lessor or a person connected with the lessor, as a finance lease or a loan, or

(ii) are comprised in arrangements which fall (or would fall) to be so treated.

...

(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3) In this section “accounts”, in relation to a company, includes any accounts which—

(a) relate to two or more companies of which that company is one, and

(b) are drawn up in accordance with generally accepted accounting practice.

Allocation of expenditure to a chargeable period

220

(A1) Subsection (1) applies to a company for a chargeable period if—

(a) at the end of the CTA period of account which is the basis period for the chargeable period, the company is a member of a group, and

(b) the last day of that CTA period of account is not also the last day of a CTA period of account of the principal company of the group.

(1) Subject to subsection (2), if the company incurs at any time in the chargeable period capital expenditure on the provision of plant or machinery for leasing under a finance lease or under a qualifying operating lease (see subsection (4)) —

(a) the part of the expenditure which is proportional to the part of that chargeable period falling before that time is not to be taken into account in determining that company's available qualifying expenditure for that period, but

(b) this does not prevent that part of the expenditure being taken into account in determining that company's available qualifying expenditure for any subsequent chargeable period.

(2) Subsection (1)(a) does not apply to a chargeable period if a disposal event occurs in that period in respect of the plant or machinery.

(3) The following provisions have effect for the interpretation of this section.

(4) A “qualifying operating lease” is a plant or machinery lease that meets the following conditions—

(a) it is not a finance lease,

(b) it is a funding lease,

(5) A CTA period of account is the basis period for a chargeable period if the chargeable period coincides with, or falls within, the CTA period of account.

(6) A “CTA period of account” is a period of account as defined in section 1119 of CTA 2010.

(7) The provisions of section 170(3) to (6) of TCGA 1992 apply to determine for the purposes of this section—

(a) whether a company is member of a group, and

(b) which company is the principal company of the group.

(8) But, in applying those provisions for the purposes of this section, a company (“the subsidiary company”) that does not have ordinary share capital is to be treated as being a qualifying 75% subsidiary of another company (“the parent company”) if the parent company—

(a) has control of the subsidiary company..., and

(b) is beneficially entitled to the appropriate proportion of profits and assets.

(9) The parent company is beneficially entitled to the appropriate proportion of profits and assets if (and only if) it—

(a) is beneficially entitled to at least 75% of any profits available for distribution to equity holders of the subsidiary company, and

(b) would be beneficially entitled to at least 75% of any assets of the subsidiary company available for distribution to its equity holders on a winding-up.

(10) The provisions of Chapter 6 of Part 5 of CTA 2010 (equity holders and profits or assets etc) also apply for the purposes of this section.

(11) In this section, the following expressions have the same meaning as in Chapter 6A of Part 2 (interpretation of provisions about long funding leases)—

“funding lease”,

“plant or machinery lease”,

“term”, in relation to a lease.

Sale and finance leasebacks

Meaning of “sale and finance leaseback”

221

(1) For the purposes of this section and section 225, plant or machinery is the subject of a sale and finance leaseback if—

(a) B enters into a relevant transaction with S,

(b) after the date of the transaction, the plant or machinery—

(i) continues to be used for the purposes of an activity carried on by S or by a person (other than B) who is connected with S,

(ii) is used for the purposes of a qualifying activity carried on by S or by a person (other than B) who is connected with S, without having been used since that date for the purposes of any other qualifying activity except that of leasing the plant or machinery, or

(iii) is used for the purposes of a non-qualifying activity carried on by S or by a person (other than B) who is connected with S, without having been used since that date for the purposes of a qualifying activity except that of leasing the plant or machinery, and

(c) it is directly or indirectly as a consequence of having been leased under a finance lease that the plant or machinery is available to be so used after that date.

(2) In this section—

“the date of the transaction” means the date of the sale, the making of the contract or the assignment referred to in section 213(1)(a) to (c),

“non-qualifying activity” means any activity which is not a qualifying activity, and

“qualifying activity” includes any activity listed in section 15(1) even if any profits or gains from it are not chargeable to tax.

Disposal value restricted

222

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

No first-year allowance for B’s expenditure

223

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Restriction on B’s qualifying expenditure

224

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

B’s qualifying expenditure if lessor not bearing non-compliance risk

225

(1) This section applies if plant or machinery is the subject of a sale and finance leaseback, and the finance lease, or any transaction or series of transactions of which it forms a part, makes provision which—

(a) removes from the lessor the whole, or the greater part, of any risk, which would otherwise fall directly or indirectly on the lessor, of any person sustaining a loss if payments under the lease are not made in accordance with its terms, and

(b) does so otherwise than by means of guarantees from persons connected with the lessee.

(2) In such a case the following are not qualifying expenditure for the purposes of this Part —

(a) B’s expenditure under the relevant transaction;

(b) if the lessor is a different person from B, the expenditure incurred by the lessor on the provision of the plant or machinery.

(3) For the purposes of determining whether this section applies, the lessor and the persons connected with the lessor are treated as the same person.

Qualifying expenditure limited in subsequent transactions

226

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Sale and leaseback: election for special treatment

Circumstances in which election may be made

227

(1) Section 228 applies if—

(a) B enters into a relevant transaction with S,

(b) the plant or machinery—

(i) is within section 216(1)(b) (sale and leaseback), ...

(ii) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(d) B and S elect that section 228 should apply.

(2) The conditions are—

(a) that S incurred capital expenditure on the provision of the plant or machinery,

(b) that the plant or machinery was unused and not second-hand at or after the time when it was acquired by S,

(c) that the plant or machinery was acquired by S otherwise than as a result of a transaction to which section 217 or 218 applies,

(d) that the relevant transaction is effected not more than 4 months after the first occasion on which the plant or machinery is brought into use by any person for any purpose, and

(e) that S has not—

(i) made a claim for an allowance under this Act in respect of expenditure incurred on the provision of the plant or machinery,

(ii) made a tax return in which such expenditure is taken into account in determining his available qualifying expenditure for the purposes of this Part, or

(iii) given notice of any such amendment of a tax return as provides for such expenditure to be so taken into account.

(3) In subsection (2)(b) and (c), the references to the plant or machinery being acquired by S are, in a case where the relevant transaction between S and B falls within section 213(1)(c) (assignment), references to the making of the contract the benefit of which S assigns to B.

(4) An election under this section—

(a) must be made by notice to an officer of Revenue and Customs no later than 2 years after the date of the transaction, and

(b) is irrevocable.

(5) Nothing in—

(a) section 42 of, or Schedule 1A to, TMA 1970 (claims and elections for income tax purposes), or

(b) paragraphs 54 to 60 of Schedule 18 to FA 1998 (claims and elections for corporation tax purposes),

applies to such an election.

(6) In subsection (4) “the date of the transaction” means the date of the sale, the making of the contract or the assignment referred to in section 213(1)(a) to (c).

Effect of election: relaxation of restriction on B’s qualifying expenditure, etc.

228

(1) The effect of an election under section 227 in relation to B is that subsections (2) and (3) apply instead of section 218 ... (restriction on B’s qualifying expenditure).

(2) The amount, if any, by which B’s expenditure under the relevant transaction exceeds D is to be left out of account in determining B’s available qualifying expenditure.

(3) D is whichever of the following is the smaller—

(a) if S incurred capital expenditure on the provision of the plant or machinery, the amount of that expenditure;

(b) if a person connected with S incurred capital expenditure on the provision of the plant or machinery, the amount of that expenditure.

(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(5) The effect of an election under section 227 in relation to S is—

(a) that no allowance is to be made to S under this Act in respect of the capital expenditure on the provision of the plant or machinery, and

(b) that the whole of that expenditure must be left out of account in determining the amount for any period of Ss’ available qualifying expenditure for the purposes of this Part.

Miscellaneous and supplementary

Hire-purchase etc.

229

(1) This section applies if—

(a) a person carrying on a qualifying activity incurs capital expenditure on the provision of plant or machinery for the purposes of the qualifying activity, and

(b) the expenditure is incurred under a contract providing that the person shall or may become the owner of the plant or machinery on the performance of the contract.

(2) If—

(a) the person assigns the benefit of the contract to another before the plant or machinery is brought into use, and

(b) the circumstances are such that allowances to the assignee fall to be restricted under this Chapter,

section 68(3) (disposal value where person ceases to be entitled to benefit of contract before plant or machinery brought into use) does not apply.

(3) If the expenditure is incurred on the provision of plant or machinery for leasing under a finance lease—

(a) section 67(3) (expenditure due to be incurred under contract treated as incurred when plant or machinery brought into use), and

(b) section 68 (disposal values where person ceases to be entitled to benefit of contract),

do not apply.

(4) Subsection (5) applies if—

(a) a person is treated under section 67(4) as ceasing to own plant or machinery, and

(b) as a result of subsection (2) or (3), section 68(3) or (as the case may be) section 68 does not apply.

(5) If this subsection applies—

(a) the disposal value is the total of—

(i) any relevant capital sums, and

(ii) any capital expenditure that the person would have incurred if he had wholly performed the contract, but

(b) the person is to be treated, for the purpose only of bringing the disposal value into account, as having incurred the capital expenditure mentioned in paragraph (a)(ii) in the relevant chargeable period.

(6) “Relevant capital sums” means capital sums that the person receives or is entitled to receive by way of consideration, compensation, damages or insurance money in respect of—

(a) his rights under the contract, or

(b) the plant or machinery.

(7) The relevant chargeable period, for the purposes of subsection (5)(b), is the chargeable period in which the person is treated under section 67(4) as ceasing to own the plant or machinery.

Exception for manufacturers and suppliers

230

(1) The restrictions in sections 217 and 218 do not apply in relation to any plant or machinery if—

(a) the relevant transaction is within section 213(1)(a) or (b),

(b) the case does not fall within section 215, and

(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3) The conditions are that—

(a) the plant or machinery has never been used before the sale or the making of the contract,

(b) S’s business, or part of S’s business, is the manufacture or supply of plant or machinery of that class, and

Adjustments of assessments etc.

231

All such assessments and adjustments of assessments are to be made as are necessary to give effect to this Chapter.

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