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Capital Allowances Act 2001

Section 117: Recovery of allowances in case of joint lessees

476.These sections are based on sections 43 and 44 of CAA 1990. They deal with expenditure on plant or machinery if at some time in the designated period:

  • the plant or machinery is leased to joint lessees who use it for the purposes of qualifying activities but not for leasing;

  • one of the lessees is not resident in the UK and does not use the plant or machinery exclusively to earn profits chargeable to UK tax; and

  • the leasing is not protected leasing.

477.These sections are likely to affect relatively few people. They are broadly meant to cater for unusual cases in which this Chapter might otherwise lead to results not intended.

478.An example might be a letting of machinery to a partnership between a person in the United Kingdom and a person overseas for use in a construction contract carried on by them outside the United Kingdom. If the partnership is on a 50/50 basis the owner of the plant or machinery might get allowances on 50% of the expenditure under the normal rules. The other 50% would be subject to sections 109 (with writing-down allowances at 10%) and 110 (allowances prohibited). The actual split of the expenditure is based on the extent to which it appears that, over a certain period, the profits of the lessees will be chargeable to UK tax. Without these sections the 10% rate of allowances or the prohibition on allowances would apply to the whole of the owner’s expenditure.

479.Because the expenditure which is split is in fact on a single item of plant or machinery there are consequential provisions dealing with the corresponding split of disposal values on a disposal of the plant or machinery.

480.These sections only allow part of the expenditure to be treated for the duration of that lease as being on plant or machinery which is not used for overseas leasing. So if the plant or machinery is used at some other time during the designated period for overseas leasing which is not protected leasing the whole of the expenditure will be subject to the 10% rate or the prohibition on allowances and these sections will be of little or no relevance.

481.If:

  • the joint lease continues at the end of the designated period; and

  • the profits of the joint lessees chargeable to United Kingdom tax are less than originally anticipated,

there is a provision for downwards adjustment of the part of the expenditure subject to the normal provisions.

482.And if at some time during the joint lease none of the lessees uses the plant or machinery to earn profits chargeable to United Kingdom tax, all of the expenditure becomes subject to the 10% rate or the prohibition on allowances.

483.Section 117(1) includes the words “the plant or machinery (or as the case may be)” which do not appear towards the end of section 44(2) of CAA 1990. Without these words, section 44(2) is not entirely consistent. See Note 29 in Annex 2.

484.Section 43(5) of CAA 1990 is not necessary now and has not been rewritten. See Note 28 in Annex 2.

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