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Capital Allowances Act 2001

Chapter 6: Hire-purchase etc. and plant or machinery provided by lessee
Overview

338.This Chapter makes special provision for expenditure on plant or machinery under a hire-purchase or similar contract which a person does not own. It also deals with expenditure by lessees who are required, under the terms of a lease, to provide plant or machinery which they do not own.

339.Section 67 treats a person entitled to the benefit of plant or machinery under a hire-purchase or similar contract as owning it. It also treats the person as having incurred all the expenditure under the contract when they bring the plant or machinery into use.

340.Section 68 provides disposal values when a person ceases to be entitled to the benefit of a contract and so is treated as ceasing to own it. The disposal value depends on whether or not the plant or machinery has been brought into use.

341.Section 69 excludes fixtures (as defined in Chapter 14) from section 67.

342.Section 70 deals with the special circumstances mentioned in paragraph 338. A lessee who is required to provide plant or machinery under the terms of a lease but does not own it is, subject to certain conditions, treated as owning it. The lessor is then, in certain circumstances, subsequently required to bring a disposal value into account.

Background

343.A person buying plant or machinery under a hire-purchase or similar contract does not own it. So they cannot meet the general conditions for allowances under this Part in section 11.

344.Legislation to enable a person to get plant and machinery allowances for expenditure under hire-purchase contracts was introduced (by FA 1957) at the same time as the general rule that plant or machinery had to belong to a person as a result of the expenditure for them to be entitled to plant and machinery allowances.

Section 67: Plant or machinery treated as owned by person entitled to benefit of contract, etc.

345.This section is based mainly on section 60(1) and (4) of CAA 1990. It treats a person who meets the conditions in the section as owning the plant or machinery. This means they meet the general condition in section 11(4)(b) (that the person owns the plant or machinery).

346.Subsection (3) treats the person as incurring all the capital expenditure under the contract when the plant or machinery is brought into use for the qualifying activity. Subsection (4) treats the person as ceasing to own the plant or machinery when they cease to be entitled to the benefit of the contract if they do not then own it. These have implications for the disposal values given in the next section.

347.This section does not apply to expenditure on fixtures (see section 69) and subsection (3) does not apply to expenditure for finance leasing (see section 229(3)).

Section 68: Disposal value on cessation of notional ownership

348.This section is based on section 60(2) of CAA 1990. It provides the disposal value when a person ceases to be entitled to the benefit of a hire-purchase or similar contract. There is a minor change.

349.Section 60(2) of CAA 1990 makes specific provision for the disposal value when a person ceases to be entitled to the benefit of a contract after bringing the plant or machinery into use for their qualifying activity. Subsection (2) gives the amount.

350.CAA 1990 makes no specific provision for the disposal value when a person ceases to be entitled to the benefit of a contract before the plant or machinery is brought into use. Subsection (3) fills this gap. The disposal value is the same as in subsection (2) except that, as the person was not treated as having incurred all the remaining capital expenditure under the contract, there is no need to take that amount away as a disposal value. See Change 16 in Annex 1.

351.Subsection (5) refers to section 229. That makes sure the disposal value in subsection (3) here does not disadvantage a person to whom a contract is assigned in a transaction which is within Chapter 17.

Section 69: Hire-purchase etc. and fixtures

352.This section is based on section 60A of CAA 1990. It excludes expenditure on fixtures from the special provisions for hire-purchase and similar contracts in section 67.

Section 70: Plant or machinery provided by lessee

353.This section is based mainly on section 61(4) and (8) of CAA 1990. It provides for the rare circumstances in which a lessee has to provide plant or machinery under the terms of a lease but does not own it. There is a minor change.

354.If the section applies:

  • the lessee is treated as owning the plant or machinery; but

  • the lessee is not required to bring a disposal value into account when the lease ends.

355.The latter is an exception to the usual rule in CAA 1990 (and in this Act). Usually cessation of ownership (or deemed ownership) is a disposal event. But in the unusual circumstances dealt with by this section it is the lessor who is required, if the plant or machinery continues in use until the lease ends, to bring a disposal value into account. That is certainly the accepted practice. Subsections (3) to (5) provide that. In doing so they fill in some gaps in section 60(4) of CAA 1990. See Change 17 in Annex 1.

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Explanatory Notes

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