Chapter 2: Contribution allowances
Overview
1871.This Chapter enables certain contributions to another person’s expenditure to qualify for allowances under Parts 2 to 5 and Part 9.
1872.Section 537 gives the general conditions which have to be satisfied for contributions to be able to lead to allowances under Parts 2 to 5.
1873.Sections 538 to 541 then give additional details relevant to each of those Parts in turn.
1874.Section 542 provides for allowances to be given on contributions after the transfer of a trade or relevant activity.
1875.Section 543 provides allowances for contributions for dredging.
Section 537: Conditions for contribution allowances under Parts 2 to 5
1876.This section is based on parts of section 154 of CAA 1990. It gives the general conditions which have to be met if a contributor (C) is to be able to get allowances under Parts 2 to 5 for a contribution.
1877.Section 154 of CAA 1990 applies explicitly to trades, professions and vocations. Subsection (4) applies for this Chapter the explicit list of activities in section 536(5). See paragraph 1866 above and Change 59 in Annex 1.
Section 538: Plant and machinery
1878.This section is based mainly on sections 154(2) and 155(6) of CAA 1990 together with parts of sections 154(1) and 155(2) and (3) of CAA 1990. If the conditions in subsection (1) are met, the contributor (C) is treated by subsection (2) as incurring expenditure on, owning and using R’s asset. This means the contributor (C) meets some of the conditions for plant and machinery allowances which otherwise would mean the contributor (C) had no entitlement. It does not mean the contributor (C) is necessarily entitled to plant and machinery allowances. For example the asset must still be plant or machinery.
1879.There is a minor change. Subsection (3) requires expenditure to be allocated to a single asset pool. This was the intention in 1989 (in what became, on consolidation, section 155(6) of CAA 1990) in order that plant and machinery allowances for a contribution could be given to a successor if part of a trade was transferred. But the fact that the expenditure is meant to be allocated to a single asset pool was not achieved unambiguously. See Change 60 in Annex 1.
1880.The general rule for single asset pools for contributions expenditure now covers contributions to expensive cars, in contrast to section 35(1) of CAA 1990 which handles them separately. See Note 19 in Annex 2.
1881.Subsections (4) to (6) provide for allowances in respect of contributions to be given to a successor when an activity or part of an activity is transferred.
1882.The single asset pool for contributions expenditure on plant and machinery leads to writing-down allowances at 25%, 10% or 6% as appropriate. Sections 102(2) and 109(3) apply to all types of single asset pools. See Note 23 in Annex 2.
1883.By providing explicitly for property businesses to be “relevant activities” for the purposes of Part 2 it is not necessary for this Act to make specific provision for plant and machinery allowances for a landlord’s contributions to expenditure for the purposes of a tenant’s trade. See Note 68 in Annex 2.
Section 539: Industrial buildings
1884.This section is based on section 154(1) and parts of section 155 of CAA 1990. If the conditions in subsection (1) are met, the contributor (C) is treated by subsection (2) as incurring expenditure on, and using, a similar asset to R’s.
1885.Subsections (3) to (6) provide for entitlement to industrial buildings allowances in respect of contributions made for the purposes of a tenant’s trade to go with the relevant interest held by C.
Example
Trader R builds a factory on land R rents from C. C makes a contribution towards R’s expenditure on the construction of the factory for the purposes of R’s trade. The factory is used for a qualifying trade and R is entitled to industrial buildings allowances.
C can claim industrial buildings allowances as if the contribution had been expenditure on a similar factory.
C subsequently (within the writing-down period) sells the land to D. Then D is entitled to industrial buildings allowances for the chargeable period in which the transfer take place and subsequent chargeable periods.
Section 540: Agricultural buildings
1886.This section is very similar to section 539. But, on a transfer of a landlord’s relevant interest, the provisions of Part 4 apply in place of those for Part 3.
1887.Paragraph 110 of Schedule 3 maintains the effect of section 155(7) of CAA 1990 which can only have effect in relation to contributions made before 27 July 1989.
Section 541: Mineral extraction
1888.This section is similar to sections 539 and 540. But it is not necessary to provide for mineral extraction allowances for a landlord’s contribution for the purposes of a tenant’s trade. Mineral extraction allowances are only available to persons carrying on a trade. See Note 68 in Annex 2.
Section 542: Transfer of C’s trade or relevant activity
1889.This section is based on section 155(3) of CAA 1990. It provides for allowances under Parts 3 to 5 in respect of contributions for the purposes of a trade or other activity to be given to a successor if the activity is transferred.
Section 543: Contribution allowances under Part 9
1890.This section is based on part of section 134(8) of CAA 1990. It provides for allowances for contributions to expenditure on dredging.
