Structure of Part 2
97.One way in which CAA 1990 copes with the extensions to the scope of plant and machinery allowances is by treating activities such as professions, vocations and property businesses as if they were trades.
98.Separate pools for expenditure are achieved in CAA 1990 by a similar device. Expenditure incurred for the purposes of a trade (or an activity treated as a trade) is treated as incurred for a separate notional trade.
99.This works. But it means that what appear to be simple references to a trade may mean something more. For example Part II of CAA 1990 starts with the simple statement in section 22:
“(1)Subject to the provisions of this Part, where—
(a)a person carrying on a trade incurs capital expenditure to which this section applies on the provision of machinery or plant wholly and exclusively for the purposes of the trade, and
(b)in consequence of his incurring the expenditure, the machinery or plant belongs to him at some time during the chargeable period related to the incurring of the expenditure,
there shall be made to him for that period an allowance (“a first-year allowance”) …”
100.This might lead readers not carrying on a trade to conclude they are not entitled to first-year allowances. But later sections in CAA 1990 mean that the “trade” in paragraph (a) does not have to be a trade. It may be another activity treated as a trade.
101.Similarly readers might take section 24 of CAA 1990 to mean they are not entitled to writing-down allowances if they are not carrying on a trade:
“(1)Subject to the provisions of this Part, where—
(a)a person carrying on a trade has incurred capital expenditure on the provision of machinery or plant wholly and exclusively for the purposes of the trade, and
(b)in consequence of his incurring that expenditure, the machinery or plant belongs or has belonged to him,
allowances and charges shall be made to and on him in accordance with the following provisions of this section.”
102.In fact the “trade” can again be another activity treated as a trade. It may also be a notional trade set up so as to create a separate pool of expenditure. In addition, expenditure which is not on plant or machinery may be treated as if it were under later provisions; or people may be treated as incurring expenditure on plant or machinery they have as a result of a gift.
103.A different approach is taken to these points in this Act. It:
deals explicitly with the various activities which CAA 1990 treats as or deems to be trades. The term “qualifying activity” is used to refer to these. See section 15.
deals explicitly with “pools” in place of notional trades (or notional qualifying activities as they would have become); and
makes clear to readers coming to Part 2 (possibly for the first time) what is required for entitlement to allowances.
104.The structure of Part 2 of this Act is accordingly different from Part II of CAA 1990. There are three main blocks of sections:
Chapters 1 to 3 deal with qualifying activities and qualifying expenditure. A person who has a qualifying activity and qualifying expenditure is normally entitled to allowances of some kind;
Chapters 4 to 18 deal with the entitlement to allowances (or liability to charges). The order of this material is a balance between several criteria: for example how often the legislation applies in practice; the benefits of putting similar provisions together; introducing concepts in a logical order; and readers’ expectations. There is no one right answer as a different mix of provisions is relevant to different taxpayers, and to different transactions by one taxpayer; and
Chapter 19 then sets out how allowances are given effect.
105.Another difference in approach in this Act from CAA 1990 is in the use of the term “qualifying expenditure”.
106.Part II of CAA 1990 uses this term to mean the sum of expenditure added to a pool for a chargeable period plus the balance (if any) of expenditure added in earlier chargeable periods. The expenditure added to a pool may be the same amount as the capital expenditure incurred on plant or machinery. But it may also be less. A simple example is if a first-year allowance is claimed. Then the amount which counts as qualifying expenditure in CAA 1990 is the balance left after the first-year allowances.
107.There is no term in CAA 1990 for the amount of expenditure on which someone can get allowances of one kind or another – first-year allowances and/or writing-down allowances. It is not the capital expenditure incurred as not all capital expenditure qualifies. So Part II of CAA 1990 has repeatedly to refer to expenditure by its characteristics. An example is section 37(1) of CAA 1990.
“(1)This section applies where—
(a)a person carrying on a trade (“the trader”) incurs capital expenditure on the provision of machinery or plant wholly and exclusively for the purposes of the trade;”
108.In this Act qualifying expenditure means expenditure on which a person may get first-year allowances or writing-down allowances (or both). This is broadly in line with other Parts of this Act which also use the term qualifying expenditure (although what is and is not qualifying expenditure differs from Part to Part). Using the term qualifying expenditure in this way allows simpler references. An example is in section 83.
“Plant or machinery in respect of which qualifying expenditure has been incurred is a short-life asset if—”
109.Other terms then follow from this use of qualifying expenditure. The table below is a simplified summary.
| in this Act | in CAA 1990 |
|---|---|
| qualifying expenditure (see section 11) | no equivalent term: broadly capital expenditure on the provision of machinery or plant wholly and exclusively for the purposes of a trade which belongs to the person incurring it (see section 25(1)(a)) |
| available qualifying expenditure (see section 57) | qualifying expenditure |
| unrelieved qualifying expenditure (see section 59) | no equivalent term: section 25(1)(b) provides that qualifying expenditure includes “if for the chargeable period immediately preceding the chargeable period in question there was an excess of qualifying expenditure over disposal value, the balance of that excess after deducting any writing-down allowance made by reference thereto”. |