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Finance Act 2012

Details of the Schedule

3.Paragraph (1) replaces section 215 of the CAA 2001: Transactions to obtain allowances, with new section 215 of CAA: Transactions to obtain tax advantages.

4.Subsection (1) of new section 215 provides that plant and machinery allowances will be restricted if a relevant transaction between B and S has an avoidance purpose, is part of a scheme or arrangement that has an avoidance purpose or occurs as a result of a scheme or arrangement with an avoidance purpose.

5.New subsection (2) provides that a relevant transaction can be treated as part of, or occurring as a result of, a scheme or arrangement regardless of when the scheme or arrangement is entered into or whether it is legally enforceable.

6.New subsection (3) defines an ‘avoidance purpose’: if the main purpose, or one of the main purposes, of a party in entering into a transaction, scheme or arrangement is to enable any person to obtain a tax advantage that would not otherwise have been obtained then that transaction, scheme or arrangement has an avoidance purpose.

7.New subsection (4) provides that a ‘tax advantage that would not otherwise have been obtained’ in subsection (3) includes an allowance that is in any way more favourable to any person – for example an allowance at a higher rate, claimed sooner or on a greater amount of qualifying expenditure – than the one that would otherwise have been obtained.

8.New subsections (5) and (6) provide that allowances may be restricted in different ways depending on the kind of tax advantage.  Section 217 of CAA denies annual investment allowance or first-year allowance where the transaction has an avoidance purpose. The way in which writing down allowances may be restricted by new section 218ZA is determined by the nature of the tax advantage.

9.New subsection (7) describes two particular kinds of tax advantage: (a) the allowance is calculated using a higher rate than the one that would otherwise be used, or (b) the allowance in respect of an amount of expenditure is available sooner than it would otherwise be.  These particular kinds of tax advantage are specified to enable allowances to be restricted in an appropriate way, by new section 218ZA (5).

10.New subsection (8) provides that if a transaction, scheme or arrangement involves more than one tax advantage (for example, allowances at a higher rate on a greater amount of expenditure) then allowances may be restricted in more than one way.

11.Paragraph (2) amends section 57 (3) of CAA to ensure that expenditure excluded by new section 218ZA is not included in the amount of a person’s available qualifying expenditure.

12.Paragraphs (3) and (4) amend sections 214 and 216 respectively to reflect the introduction of new section 218ZA. Allowances may be restricted under section 218 where there is a transaction between connected persons (within section 214) or where there is a sale and leaseback transaction (within section 216). If a connected person transaction or a sale and leaseback also has an avoidance purpose, or is part of a scheme or arrangement with an avoidance purpose, then allowances may be further restricted under new section 218ZA(3).

13.Paragraph (5) makes various amendments to section 218 so that section 218 will no longer restrict allowances where there is a transaction to obtain tax advantages within section 215, unless the transaction falls within section 215 and section 214 (connected persons transactions) or section 215 and section 216 (sale and leasebacks).

14.Paragraph (6) inserts new section 218ZA of CAA which determines how writing-down allowances are to be restricted where there is a transaction to which section 215 applies. New section 218ZA applies even if the transaction also falls within section 214 (because it is a connected person transaction) or within section 216 (sale and leasebacks). New section 218ZA operates by restricting the allowances that B can claim following the transaction (B is the person who has incurred, or is treated as having incurred capital expenditure on the provision of plant and machinery). Allowances can be restricted by reducing the amount of expenditure on which B can claim allowances, by reducing the rate at which allowances are given or by reversing any timing advantage sought (or any combination of restrictions).

15.New section 218ZA subsection (1) provides that where there is an avoidance purpose the amount of expenditure on which B can claim capital allowances is restricted. The restriction of allowances is made under this subsection unless the tax advantage is within section 215(7), that is, either that B’s allowances are calculated at a higher rate or B is entitled to an allowance sooner than it would otherwise be.

16.New subsection (2) explains that, if new subsection (1) applies, B’s qualifying expenditure is restricted by the amount that would in effect cancel out the tax advantage whether or not the tax advantage arises to B. However, the restriction can never be more than B’s expenditure under the relevant transaction.

17.New subsections (3) and (4) provide that if B’s writing-down allowances could be restricted both under subsection (1) (because there is an avoidance purpose) and also under section 218 or section 228, then B’s allowances are restricted by the amount that is the larger of the two restrictions.

18.New subsection (5) provides that if the tax advantage is within section 215(7) – where B’s allowances have been calculated at a higher rate or claimed sooner than they would otherwise have been - then the restriction is that B’s writing-down allowances are calculated using the rate that would have been used or the entitlement is delayed to when it would have been available without the tax advantage.

19.New subsection (6) provides that a restriction calculated under subsection (5), by reference to the rate or timing of B’s allowances, can be made in addition to a restriction under section 218 or section 228.

20.Paragraph (7) provides that section 230 of CAA, as amended by section 686a, is further amended.

21.Subparagraph (2) amends subsection (1) of section 230 so that the ‘exception for manufacturers and suppliers’ from the restrictions in sections 218 and 217 will not apply if there is a transaction with an avoidance purpose, or which is part of or occurs as a result of a scheme or arrangement with an avoidance purpose, within section 215.

22.Paragraph (8) inserts new section 268E of CAA which confirms the definition of the terms ‘assigns’ and ‘assignments’ which apply for Part 2 of CAA.

23.Paragraph (9) provides that the amendments made by this section will apply from 1 April 2012 (for corporation tax purposes) and 6 April 2012 (for income tax purposes).

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