Section 52: First-year allowances
261.This section is based mainly on section 22(1) of CAA 1990. It gives entitlement to first-year allowances.
262.Subsection (1) gives entitlement to first-year allowances if a person both incurs first-year qualifying expenditure in a chargeable period and owns the plant or machinery in that chargeable period.
263.Subsection (2) makes clear that any first-year allowance is made for the chargeable period in which the expenditure is incurred.
264.Subsection (3) gives the rates of first-year allowances.
265.Subsection (4) allows a person to claim first-year allowances for only some (including none) of their first-year qualifying expenditure. This is more direct than section 22(7) of CAA 1990. That permits a person to require that the amount of the allowance, or aggregate amount of the allowances, be reduced to an amount specified in that claim. The ability to do so helps people who might otherwise face a balancing charge in the same chargeable period. They can then add some or all of the first-year qualifying expenditure to their pool for the current chargeable period (see paragraph 295 below).
266.Section 22(7) of CAA 1990 deals with the aggregate of allowances to keep the sums simple. Section 52 gives people the option of doing that in practice by claiming for the same proportion of all first-year qualifying expenditure or of claiming for different proportions of different items of expenditure.
267.Section 22(7) does not permit a claim for reduced first-year allowances for ships. But section 30(1)(b) of CAA 1990 makes equivalent provision.
268.Section 22(7) and 30(1) require the claim to specify the reduced allowance required. Subsection (4) achieves this more directly by dealing with qualifying expenditure. See Note 15 in Annex 2.
269.Subsection (5) gives signposts to other provisions which may affect first-year allowances.
Example
Assume P:
starts trading as a plumber on 6 April 2002;
prepares accounts to 5 April each year; and
buys during 2002-03 a van for £5,000 and a computer for £1,000 for use wholly and exclusively for business purposes.
P has for the year ending 5 April 2003:
£5,000 first-year qualifying expenditure under section 44 (expenditure incurred by small or medium-sized enterprises) on which P can claim allowances of £5,000 x 40% = £2,000; and
£1,000 first-year qualifying expenditure under section 45 (ICT expenditure incurred by small enterprises) on which P can claim allowances of £1,000 x 100% = £1,000.
But P does not have to claim these first-year allowances. If, for example, P has income only £1,000 greater than the personal allowance then P might decide to claim first-year allowances of £1,000 in respect of only half the expenditure on the van and none in respect of the expenditure on the computer.
