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Finance Act 2012

Section 45K Expenditure on plant and machinery for use in designated assisted areas.

5.New section 45K(1) sets out the circumstances in which expenditure on plant or machinery constitutes first-year qualifying expenditure.  The conditions are that the expenditure must be incurred:

  • by a company on the provision of plant or machinery for use primarily in an area which is a designated assisted area at that time.   (The restriction of the new FYAs to “a company” means that unincorporated businesses and partnerships of companies, even if the partnership may be a body corporate, are not eligible for these new FYAs);

  • in the period of five years beginning with 1 April 2012;

and -

  • five further conditions (conditions A to E) must also be met.

6.New section 45K(2) sets out the meaning of “designated assisted area”: this means an area which has been designated by an order made by the Treasury, and an area that falls wholly within an assisted area (see new subsection 14). This latter requirement is the first of a number designed to ensure that these new FYAs fallwithin Commission Regulation (EC) No 800/2008 known as the General Block Exemption Regulation (“GBER”) (see new subsection (13) in respect of State Aid. Because they provide a geographically selective benefit, the new FYAs would constitute regional State Aid.

7.New section 45K(3) sets out the circumstances in which an area may be designated by an order.  There are two requirements:

  • the area must fall wholly within an enterprise zone (see new subsection 14), and

  • the Treasury and the responsible authority (see new subsection 14) must have entered into a memorandum of understanding relating to the availability of the new FYAs in the area. (The memoranda of understanding, each of which will include a map of the relevant designated assisted area, will be published on the HM Treasury website.)

8.New section 45K(4) ensures that, where appropriate, the order may have retrospective effect.  So, for example, if the order so provides, the new FYAs may be made available in respect of qualifying expenditure incurred on or after 1 April 2012, even if the order is not made until some time after Royal Assent to Finance Act 2012, say, in late August 2012.

9.New section 45K(5) prevents an area being revoked or reduced in size with retrospective effect.

10.New sections 45K (6) to (10) set out the five further conditions (that is, in addition to those in New section 45K(1)), which also have to be met:

  • conditions A and B restrict the new relief to UK resident companies, which are liable to corporation tax, and that carry on a trade or a mining, transport or similar undertaking (as mentioned in section 12(4) of Income Tax (Trading and Other Income) Act 2005 (ITTOAI) or 39(4) of Corporation Tax Act 2009 (CTA 2009));

  • condition C ensures that the GBER requirement for the expenditure to comprise investment aid, rather than operating aid, is met.  This effectively means that the expenditure must be incurred on setting up a new business, expanding an existing business or on a fundamental change to a product or production process of, or service provided by, a business carried on by a company;

  • condition D focuses the relief on new and unused plant and machinery, which is a GBER requirement; and

  • condition E is that the expenditure is not “replacement expenditure” (as defined in New section 45K(11)), which is also a GBER requirement.

11.New sections 45K(11), (12) and (13) explain the meaning and scope of “replacement expenditure” and also provide for a just and reasonable apportionment where part only of the expenditure is replacement expenditure.

12.New section 45K (14) defines “assisted area”, “enterprise zone” and “the responsible authority”.

13.New section 45K (15) allows the Treasury to amend the definition of “assisted area” by order, if any changes are made to the areas in the UK which are granted assisted area status. The current list of assisted areas is due to be revised by the Commission with effect from 1 January 2014.

14.New section 45K(16) provides that new section 45K is subject to

  • new section 45L (plant or machinery partly for use outside designated assisted areas),

  • new section 45M  (exclusions from section 45K allowances),

  • new section 45N (effect of plant or machinery subsequently being primarily used in an area other than a designated assisted area), and

  • section 46 (general exclusions).

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