Chapter 4: Qualifying expenditure
Overview
1008.This Chapter sets out what is qualifying expenditure for the purposes of Part 3. Allowances under this Part are made in relation to qualifying expenditure.
1009.Section 292 introduces five ways in which expenditure may be qualifying expenditure in this Chapter.
1010.Section 293 defines for the purposes of this Chapter “developer” and “development trade”.
1011.Section 294 provides that capital expenditure on the construction of a building is qualifying expenditure if the relevant interest in the building has not been sold or was sold only after its first use.
1012.Section 295 provides qualifying expenditure for the purchase of an unused building if a developer is not involved in the transaction.
1013.Section 296 provides qualifying expenditure for the purchase of an unused building built by a developer.
1014.Section 297 provides qualifying expenditure for a used building purchased from a developer.
1015.Sections 298 to 304 make additional provision for enterprise zones and “qualifying enterprise zone expenditure”.
1016.Section 298 sets the time limits for expenditure on the construction of a building in an enterprise zone to be qualifying enterprise zone expenditure. It also defines “enterprise zones” and “EZ building”.
1017.Sections 299 and 300 provide that qualifying expenditure under sections 294 to 296 on an EZ building is qualifying enterprise zone expenditure. All construction expenditure must be within the time limit.
1018.Section 301 provides for qualifying expenditure on the purchase of an EZ building within 2 years of its first use.
1019.Sections 302 to 304 deal with cases which would be within section 300 or 301 but for the fact that only part of the expenditure was within the time limit. They provide for part of the qualifying expenditure on its construction to be qualifying enterprise zone expenditure.
Section 292: Meaning of “qualifying expenditure”
1020.This section introduces Chapter 4 and provides signposts to the sections which give qualifying expenditure for the purposes of this Part.
Section 293: Meaning of references to carrying on trade as a developer
1021.This section is based on sections 10(3) and (4) and 10A(9) of CAA 1990. It defines terms used in this Chapter.
Section 294: Capital expenditure on construction of a building
1022.This section is based on parts of sections 1(1), 3(1), 6(1), 10(1)(a) and 10A(2)(a) of CAA 1990. It deals with the straightforward case of capital expenditure incurred on the construction of a building by a person who used the building whether or not the relevant interest was subsequently sold.
Section 295: Purchase of unused building where developer not involved
1023.This section is based on parts of sections 10(1) and 10A(1) and (2) and sections 10(2) and 10A(8) of CAA 1990. It deals with a building sold before it is used. No developer is involved. The qualifying expenditure is the lesser of:
the price paid; and
the construction expenditure.
Section 296: Purchase of building which has been sold unused by developer
1024.This section is based on parts of sections 10(1) and (3) and 10A(2) and (9) of CAA 1990. It deals with buildings sold by a developer before being used.
1025.Subsection (2) gives the qualifying expenditure if the sale in question is the first sale.
1026.Subsection (3) gives the qualifying expenditure if there are previous sales.
Section 297: Purchase of used building from developer
1027.This section is based on section 10(4) and (5) of CAA 1990. If a building is purchased from a developer after it has been first used, this section:
gives the qualifying expenditure for the buyer; and
writes off expenditure in respect of the time the developer had the building.
1028.Subsection (3) provides that sections 301 and 303 take precedence over this section. These sections only apply to buildings in enterprise zones which are purchased within two years of first use.
Sections 298 to 304: qualifying enterprise zone expenditure
1029.These seven sections identify qualifying enterprise zone expenditure. They draw on the provisions earlier in this Chapter for qualifying expenditure. But they also make special provision for buildings purchased within two years of their first use.
1030.Section 298 is based on parts of sections 1, 6, 10A and 10B, 17A and 21 of CAA 1990. It sets a time limit on construction expenditure in an enterprise zone. And it defines two terms used in the following sections.
1031.Section 299 is based on parts of section 10A(1), (2), (8) and (9) of CAA 1990. It provides that qualifying expenditure under section 294 is qualifying enterprise zone expenditure if incurred on the construction of an EZ building within the time limit.
1032.Section 300 is based on parts of sections 1(1) and 6(1) of CAA 1990. It provides that qualifying expenditure under sections 295 and 296 is qualifying enterprise zone expenditure if the construction expenditure was all incurred within the time limit of an EZ building.
1033.Section 301 is based on parts of section 10B(1), (2), (4), (5) and (8) of CAA 1990. It provides special rules for an EZ building sold after it has first been used but within two years of that first use. If the conditions in subsection (1) are met the sale is treated as a balancing event (see Chapter 7) and the qualifying expenditure is subsequently ignored. But the purchaser is treated as having incurred qualifying enterprise zone expenditure on an unused building.
1034.Section 302 is the first of three sections which deal with the situation in which only part of the expenditure incurred on constructing a building comes within the enterprise zone time limit as defined in section 298. It is based on parts of section 10A(1), (3) and (4) and on section 10A(6) of CAA 1990. It deals with the two situations covered by sections 295(1) and 296(1). It provides that part of the qualifying expenditure identified by those sections is qualifying enterprise zone expenditure. It does so by apportioning the qualifying expenditure between the amount of expenditure incurred on the EZ building within the time limit and the total expenditure on the building.
1035.Section 303 is based on parts of sections 10B(1), (2) and (4) and 10B(6) and (7) of CAA 1990. It is similar to section 301 but deals with cases in which only part of the expenditure on constructing the building is within the enterprise zone time limit as defined in section 298.
1036.Subsection (4) sets out the method of calculating that part of the qualifying expenditure which will be qualifying enterprise zone expenditure and that part which will not. It applies if a developer is not involved. (The calculations to be made if a developer is involved are provided by section 304.)
1037.Section 304 is based on section 10B(8) of CAA 1990. It is similar to section 303 but deals with cases in which a developer is involved.
