Capital Allowances Act 2001 (c. 2)

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Part 2 Plant and machinery allowances

Chapter 1 Introduction

11 General conditions as to availability of plant and machinery allowances

(1) Allowances are available under this Part if a person carries on a qualifying activity and incurs qualifying expenditure.

(2) “Qualifying activity” has the meaning given by Chapter 2.

(3) Allowances under this Part must be calculated separately for each qualifying activity which a person carries on.

(4) The general rule is that expenditure is qualifying expenditure if—

(a) it is capital expenditure on the provision of plant or machinery wholly or partly for the purposes of the qualifying activity carried on by the person incurring the expenditure, and

(b) the person incurring the expenditure owns the plant or machinery as a result of incurring it.

(5) But the general rule is affected by other provisions of this Act, and in particular by Chapter 3.

12 Expenditure incurred before qualifying activity carried on

For the purposes of this Part, expenditure incurred for the purposes of a qualifying activity by a person about to carry on the activity is to be treated as if it had been incurred by him on the first day on which he carries on the activity.

13 Use for qualifying activity of plant or machinery provided for other purposes

(1) This section applies if a person—

(a) brings plant or machinery into use for the purposes of a qualifying activity carried on by him, and

(b) on the date when he does so, owns the plant or machinery as a result of having incurred capital expenditure (“actual expenditure”) on its provision for purposes other than those of that qualifying activity.

(2) The person is to be treated—

(a) as having incurred capital expenditure (“notional expenditure”) on the provision of the plant or machinery for the purposes of the qualifying activity on the date on which it is brought into use for those purposes, and

(b) as owning the plant or machinery as a result as having incurred that expenditure.

(3) Subject to subsection (4), the amount of the notional expenditure is the market value of the plant or machinery on the date when it is brought into use for the purposes of the qualifying activity.

(4) If the market value is greater than the actual expenditure, the amount of the notional expenditure is the amount of the actual expenditure, less any amount required to be deducted under subsection (5).

(5) The amount to be deducted is any amount that under section 218 or 224 would have been left out of account in determining the person’s available qualifying expenditure if the actual expenditure had been incurred on the provision of the plant or machinery for the purposes of the qualifying activity.

(6) The question whether the provision of the plant or machinery is to be treated as wholly or only partly for the purposes of the qualifying activity is to be determined according to whether the use referred to in subsection (1)(a) is wholly or only partly for those purposes.

(7) This section is subject to section 161 (pre-trading expenditure on mineral exploration and access).

14 Use for qualifying activity of plant or machinery which is a gift

(1) This section applies if a person—

(a) is the owner of plant or machinery as a result of a gift, and

(b) brings the plant or machinery into use for the purposes of a qualifying activity carried on by him.

(2) The person is to be treated—

(a) as having incurred capital expenditure on the provision of the plant or machinery for the purposes of the qualifying activity on the date on which it is brought into use for those purposes, and

(b) as owning the plant or machinery as a result of having incurred that expenditure.

(3) The amount of that capital expenditure is to be treated as being the market value of the plant or machinery on the date when it was brought into use for the purposes of the qualifying activity.

(4) The question whether the provision of the plant or machinery is to be treated as wholly or only partly for the purposes of the qualifying activity is to be determined according to whether the use referred to in subsection (1)(b) is wholly or only partly for those purposes.

(5) This section is subject to section 161 (pre-trading expenditure on mineral exploration and access).

Chapter 2 Qualifying activities

15 Qualifying activities

(1) Each of the following is a qualifying activity for the purposes of this Part—

(a) a trade,

(b) an ordinary Schedule A business,

(d) an overseas property business,

(e) a profession or vocation,

(f) a concern listed in section 55(2) of ICTA (mines, transport undertakings etc.),

(g) the management of an investment company,

(h) special leasing of plant or machinery, and

(i) an employment or office,

but to the extent only that the profits or gains from the activity are, or (if there were any) would be, chargeable to tax.

(2) Subsection (1) is subject to the following provisions of this Part.

(3) This section, in so far as it provides for—

(a) an ordinary Schedule A business,

(b) an overseas property business, or

to be a qualifying activity, needs to be read with section 35 (expenditure on plant or machinery for use in a dwelling-house not qualifying expenditure in certain cases).

(4) Also, subsection (1)(i) needs to be read with sections 36 (restriction on qualifying expenditure in case of employment or office) and 80 (vehicles provided for purposes of employment or office).

16 Ordinary Schedule A businesses

In this Part “ordinary Schedule A business” means a Schedule A business except in so far as it is a furnished holiday lettings business.

17 Furnished holiday lettings businesses

(1) In this Part “furnished holiday lettings business” means a Schedule A business in so far as it consists of the commercial letting of furnished holiday accommodation in the United Kingdom.

(2) All commercial lettings of furnished holiday accommodation made by a particular person or partnership or body of persons are to be treated as one qualifying activity.

(3) “Commercial letting of furnished holiday accommodation” has the meaning given by section 504 of ICTA.

(4) If there is a letting of accommodation only part of which is holiday accommodation, such apportionments are to be made for the purposes of this section as are just and reasonable.

18 Management of investment companies

(1) For the purposes this Part, the management of an investment company consists of pursuing those purposes expenditure on which would be treated as expenses of management within section 75 of ICTA.

(2) In this Part “investment company” has the meaning given by section 130 of ICTA.

19 Special leasing of plant or machinery

(1) In this Part “special leasing”, in relation to plant or machinery, means hiring out the plant or machinery otherwise than in the course of any other qualifying activity (and references to a lessor or lessee in the context of special leasing are to be read accordingly).

(2) A qualifying activity consisting of special leasing of plant or machinery begins when the plant or machinery is first hired out in the circumstances given in subsection (1).

(3) A qualifying activity consisting of special leasing of plant or machinery is permanently discontinued if the lessor permanently ceases to hire out the plant or machinery otherwise than in the course of any other qualifying activity.

(4) A person who has more than one item of plant or machinery that is the subject of special leasing has a separate qualifying activity in relation to each item.

(5) If a company carrying on any life assurance business—

(a) hires out plant or machinery which is an investment asset (as defined by section 545(2)), and

(b) does not do so in the course of a property business,

the company is to be treated for the purposes of subsection (1) as hiring out the plant or machinery otherwise than in the course of a qualifying activity.

20 Employments and offices

(1) In section 15(1)(i) “employment” does not include an employment the performance of the duties of which is treated as the carrying on of a trade under section 314 of ICTA (divers and diving supervisors in the North Sea etc.).

(2) Subsection (3) applies if the emoluments for any duties of an employment or office do not fall within Case I or II of Schedule E.

(3) This Part applies in relation to—

(a) those emoluments, or

(b) any other emoluments of the employment or office,

as if the performance of the duties did not belong to that employment or office.

Chapter 3 Qualifying expenditure

Buildings, structures and land

21 Buildings

(1) For the purposes of this Act, expenditure on the provision of plant or machinery does not include expenditure on the provision of a building.

(2) The provision of a building includes its construction or acquisition.

(3) In this section, “building” includes an asset which—

(a) is incorporated in the building,

(b) although not incorporated in the building (whether because the asset is moveable or for any other reason), is in the building and is of a kind normally incorporated in a building, or

List A

Assets treated as buildings

1.	Walls, floors, ceilings, doors, gates, shutters, windows and stairs.
2.	Mains services, and systems, for water, electricity and gas.
3.	Waste disposal systems.
4.	Sewerage and drainage systems.
5.	Shafts or other structures in which lifts, hoists, escalators and moving walkways are installed.
6.	Fire safety systems.

(4) This section is subject to section 23.

22 Structures, assets and works

(1) For the purposes of this Act, expenditure on the provision of plant or machinery does not include expenditure on—

(a) the provision of a structure or other asset in list B, or

(b) any works involving the alteration of land.

List B

Excluded structures and other assets

1.	A tunnel, bridge, viaduct, aqueduct, embankment or cutting.
2.	A way, hard standing (such as a pavement), road, railway, tramway, a park for vehicles or containers, or an airstrip or runway.
3.	An inland navigation, including a canal or basin or a navigable river.
4.	A dam, reservoir or barrage, including any sluices, gates, generators and other equipment associated with the dam, reservoir or barrage.
5.	A dock, harbour, wharf, pier, marina or jetty or any other structure in or at which vessels may be kept, or merchandise or passengers may be shipped or unshipped.
6.	A dike, sea wall, weir or drainage ditch.
7.	Any structure not within items 1 to 6 other than— (a) a structure (but not a building) within Chapter 2 of Part 3 (meaning of “industrial building”), (b) a structure in use for the purposes of an undertaking for the extraction, production, processing or distribution of gas, and (c) a structure in use for the purposes of a trade which consists in the provision of telecommunication, television or radio services.

(2) The provision of a structure or other asset includes its construction or acquisition.

(3) In this section—

(a) “structure” means a fixed structure of any kind, other than a building (as defined by section 21(3)), and

(b) “land” does not include buildings or other structures, but otherwise has the meaning given in Schedule 1 to the Interpretation Act 1978 (c. 30).

(4) This section is subject to section 23.

23 Expenditure unaffected by sections 21 and 22

(1) Sections 21 and 22 do not apply to any expenditure to which any of the provisions listed in subsection (2) applies.

(2) The provisions are—

section 28 (thermal insulation of industrial buildings);
section 29 (fire safety);
section 30 (safety at designated sports grounds);
section 31 (safety at regulated stands at sports grounds);
section 32 (safety at other sports grounds);
section 33 (personal security);
section 71 (software and rights to software);
section 40D of F(No.2)A 1992 (election relating to tax treatment of films expenditure).

(3) Sections 21 and 22 also do not affect the question whether expenditure on any item described in list C is, for the purposes of this Act, expenditure on the provision of plant or machinery.

(4) But items 1 to 16 of list C do not include any asset whose principal purpose is to insulate or enclose the interior of a building or to provide an interior wall, floor or ceiling which (in each case) is intended to remain permanently in place.

List C

Expenditure unaffected by sections 21 and 22

1.	Machinery (including devices for providing motive power) not within any other item in this list.
2.	Electrical systems (including lighting systems) and cold water, gas and sewerage systems provided mainly— (a) to meet the particular requirements of the qualifying activity, or (b) to serve particular plant or machinery used for the purposes of the qualifying activity.
3.	Space or water heating systems; powered systems of ventilation, air cooling or air purification; and any floor or ceiling comprised in such systems.
4.	Manufacturing or processing equipment; storage equipment (including cold rooms); display equipment; and counters, checkouts and similar equipment.
5.	Cookers, washing machines, dishwashers, refrigerators and similar equipment; washbasins, sinks, baths, showers, sanitary ware and similar equipment; and furniture and furnishings.
6.	Lifts, hoists, escalators and moving walkways.
7.	Sound insulation provided mainly to meet the particular requirements of the qualifying activity.
8.	Computer, telecommunication and surveillance systems (including their wiring or other links).
9.	Refrigeration or cooling equipment.
10.	Fire alarm systems; sprinkler and other equipment for extinguishing or containing fires.
11.	Burglar alarm systems.
12.	Strong rooms in bank or building society premises; safes.
13.	Partition walls, where moveable and intended to be moved in the course of the qualifying activity.
14.	Decorative assets provided for the enjoyment of the public in hotel, restaurant or similar trades.
15.	Advertising hoardings; signs, displays and similar assets.
16.	Swimming pools (including diving boards, slides and structures on which such boards or slides are mounted).
17.	Any glasshouse constructed so that the required environment (namely, air, heat, light, irrigation and temperature) for the growing of plants is provided automatically by means of devices forming an integral part of its structure.
18.	Cold stores.
19.	Caravans provided mainly for holiday lettings.
20.	Buildings provided for testing aircraft engines run within the buildings.
21.	Moveable buildings intended to be moved in the course of the qualifying activity.
22.	The alteration of land for the purpose only of installing plant or machinery.
23.	The provision of dry docks.
24.	The provision of any jetty or similar structure provided mainly to carry plant or machinery.
25.	The provision of pipelines or underground ducts or tunnels with a primary purpose of carrying utility conduits.
26.	The provision of towers to support floodlights.
27.	The provision of— (a) any reservoir incorporated into a water treatment works, or (b) any service reservoir of treated water for supply within any housing estate or other particular locality.
28.	The provision of— (a) silos provided for temporary storage, or (b) storage tanks.
29.	The provision of slurry pits or silage clamps.
30.	The provision of fish tanks or fish ponds.
31.	The provision of rails, sleepers and ballast for a railway or tramway.
32.	The provision of structures and other assets for providing the setting for any ride at an amusement park or exhibition.
33.	The provision of fixed zoo cages.

(5) In item 19 of list C, “caravan” includes, in relation to a holiday caravan site, anything that is treated as a caravan for the purposes of—

(a) the Caravan Sites and Control of Development Act 1960 (c. 62), or

(b) the Caravans Act (Northern Ireland) 1963 (c. 17 (N.I.)).

24 Interests in land

(1) For the purposes of this Act, expenditure on the provision of plant or machinery does not include expenditure on the acquisition of an interest in land.

(2) In this section “land” does not include—

(a) buildings or other structures, or

(b) any asset which is so installed or otherwise fixed to any description of land as to become, in law, part of the land,

but otherwise has the meaning given in Schedule 1 to the Interpretation Act 1978 (c. 30).

(3) Subject to subsection (2), “interest in land” has the meaning given by section 175 (definitions in connection with provisions about fixtures).

25 Building alterations connected with installation of plant or machinery

If a person carrying on a qualifying activity incurs capital expenditure on alterations to an existing building incidental to the installation of plant or machinery for the purposes of the qualifying activity, this Part applies as if—

(a) the expenditure were expenditure on the provision of the plant or machinery, and

(b) the works representing the expenditure formed part of the plant or machinery.

Demolition costs

26 Demolition costs

(1) This section applies if—

(a) plant or machinery is demolished, and

(b) the last use of the plant or machinery was for the purposes of a qualifying activity.

(2) If the person carrying on the qualifying activity replaces the plant or machinery with other plant or machinery then, for the purposes of this Part, the net cost of the demolition to that person is treated as expenditure incurred on the provision of the other plant or machinery.

(3) If the person carrying on the qualifying activity does not replace the plant or machinery, the net cost of the demolition to that person is allocated to the appropriate pool for the chargeable period in which the demolition takes place.

(4) In subsection (3)—

“the appropriate pool” means the pool to which the expenditure on the demolished plant or machinery has been or would be allocated in accordance with this Part, and
“the net cost of the demolition” means the amount, if any, by which the cost of the demolition exceeds any money received for the remains of the plant or machinery.

(5) Subsection (3) is subject to section 164(4) (abandonment expenditure before cessation of ring fence trade: election for special allowance).

Expenditure on thermal insulation, safety measures, etc.

27 Application of Part to thermal insulation, safety measures, etc.

(1) Subsection (2) has effect in relation to expenditure if—

(a) it is expenditure to which any of sections 28 to 33 applies, and

(b) an allowance under Part 2 or a deduction in respect of the expenditure could not, in the absence of this section, be made in calculating the income from the qualifying activity in question.

(2) This Part (including in particular section 11(4)) applies as if—

(a) the expenditure were capital expenditure on the provision of plant or machinery for the purposes of the qualifying activity in question, and

(b) the person who incurred the expenditure owned plant or machinery as a result of incurring it.

28 Thermal insulation of industrial buildings

(1) This section applies to expenditure if a person carrying on a qualifying activity consisting of a trade has incurred it in adding insulation against loss of heat to an industrial building occupied by him for the purposes of the trade.

(2) This section also applies to expenditure if a person carrying on a qualifying activity consisting of an ordinary Schedule A business has incurred it in adding insulation against loss of heat to an industrial building let by him in the course of the business.

(3) “Industrial building” means a building or structure which is in use for the purposes of a qualifying trade (within the meaning of Chapter 2 of Part 3).

29 Fire safety

(1) This section applies to expenditure if a person carrying on a qualifying activity has incurred it in taking required fire precautions in respect of premises which he uses for the purposes of the qualifying activity.

(2) A person takes required fire precautions in respect of premises if—

(a) he has been served with a notice under section 5(4) of the Fire Precautions Act 1971 (c. 40) specifying steps to be taken in respect of the premises, and

(b) he takes the steps specified in the notice.

(3) A person also takes required fire precautions in respect of premises if—

(a) he has not been served with a notice by the fire authority under section 5(4) of the 1971 Act, but has been sent or given a document by or on behalf of the fire authority that specifies steps that might have been specified in respect of the premises in such a notice, and

(b) he takes the steps specified in the document.

(4) A person also takes required fire precautions in respect of premises if—

(a) he has been served with a prohibition notice under section 10 of the 1971 Act in respect of the premises specifying matters giving rise to a risk of a kind mentioned in subsection (2) of that section, and

(b) he takes steps to remedy the matters specified in the prohibition notice.

(5) This section has effect in relation to Northern Ireland subject to the modifications in subsection (6).

(6) The modifications are—

(a) for the references to section 5(4) of the 1971 Act substitute references to Article 26(4) of the Fire Services (Northern Ireland) Order 1984 (S.I.1984/1821 (N.I.11)),

(b) for the reference to section 10 of the 1971 Act substitute a reference to Article 33 of the 1984 Order, and

30 Safety at designated sports grounds

(1) This section applies to expenditure if a person carrying on a qualifying activity has incurred it in taking required safety precautions in respect of a sports ground which is—

(a) designated under section 1 of the Safety of Sports Grounds Act 1975 (c. 52) as requiring a safety certificate, and

(b) used by him for the purposes of the qualifying activity.

(2) A person takes required safety precautions in respect of the sports ground if—

(a) a safety certificate has been issued under the 1975 Act for the sports ground, and

(b) he takes steps necessary for compliance with the terms and conditions of the safety certificate.

(3) A person also takes required safety precautions in respect of the sports ground if—

(a) he has been sent or given a document by or on behalf of the local authority for the area in which the sports ground is situated,

(b) the document specifies steps which, if taken, would—

(i) be taken into account by the local authority in deciding what terms and conditions to include in a safety certificate to be issued under the 1975 Act for the sports ground, or

(ii) lead to the amendment or replacement of a safety certificate issued or to be issued under the 1975 Act for the sports ground, and

31 Safety at regulated stands at sports grounds

(1) This section applies to expenditure if a person carrying on a qualifying activity has incurred it in taking required safety precautions in respect of a stand at a sports ground—

(a) the use of which requires a safety certificate under Part III of the Fire Safety and Safety of Places of Sport Act 1987 (c. 27), and

(b) which he uses for the purposes of the qualifying activity.

(2) A person takes required safety precautions in respect of the stand at the sports ground if—

(a) a safety certificate has been issued under the 1987 Act for the stand, and