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Finance Act 2012

Section 45M Exclusions from allowances under section 45K

16.New section 45M(1) provides that expenditure incurred by a person is not first-year qualifying expenditure under new section 45K if it falls within sections 45M(2), (4), (6) or (7).  The exclusions in these subsections are GBER requirements.

17.New sections 45M(2) to (5) provide that expenditure does not qualify for new section 45K allowances if the person who incurred the expenditure is, or forms part of, an “undertaking” that is:

  • a “firm in difficulty”;

  • subject to an outstanding recovery order, declaring aid illegal;

  • in the fishery or aquaculture sectors;

  • in the coal, steel, shipbuilding or synthetic fibres sectors;

  • engaged in the management of waste of other “undertakings”;

or -

  • is engaged in:


    the primary production of agricultural products,


    on-farm activities necessary for preparing an animal or plant product for the first sale,


    the first sale of agricultural products by a primary producer to wholesalers, retailers or processers where that sale does not take place on separate premises reserved for that purpose.

18.New section 45M(6) provides that expenditure does not qualify for relief if it is incurred on a means of transport or transport equipment by a person carrying on a qualifying activity in the road freight or air transport sectors. This does not mean that all expenditure incurred by businesses in those sectors is excluded; only their expenditure on means of transport and transport equipment is ineligible for relief.

19.New sections 45M(7) provides that no new section 45K allowances are to be made if a relevant grant or relevant payment is made towards that expenditure, or any other expenditure incurred by any person in respect of the same designated assisted area and on the same “single investment project.”  (See new subsection (12), where “single investment project” is given the same meaning as in the GBER). For example, a company building a new production facility in a designated assisted area cannot receive both the new FYA and any other State aid in relation to, say, either the building costs of the actual facility (as opposed to the plant and machinery to be used in the facility, which would qualify for the new FYAs) or, say, staff training costs, to be incurred on training employees on how to use the new equipment.  If any company can apply for another State aid in relation to the same project, then it will have to decide which State aid is of greater value to it.

20.The GBER at Article 13(10) explains what a “single investment project” is and the preamble at paragraph 41 further explains that the scope of the project should not be construed narrowly and should be assessed independently from ownership. This means that a “single investment project” is not limited to the project of a single company, but includes one carried out by an undertaking or undertakings, for example, a joint venture.  So, if, for example, two companies are involved in the same “single investment project” as a joint venture  and one company receives any form of State aid (other than the new FYA) in relation to the project, then neither company can claim the new FYA, even if one of the companies did not receive any other State aid in respect of that joint venture project.

21.A grant or payment is relevant if it is a State aid (other than a FYA under these new provisions), or if it is declared, by Treasury order, to be relevant.

22.This new subsection 45M(7) and the next, subsection 45M(8), together with the cap on these new FYAs (as provided for in paragraph 7 of this Schedule) are designed to ensure that the new FYA rules are fully compliant with the GBER rules about the cumulation of State aid.  A large, investment project, that received State aid in excess of the cap, would not generally fall within the terms of the GBER, and would have to be separately notified to the European Commission, before any State aid could be granted.  The tax system is not structured to cater for the cumulation of different forms of aid, so, for the purposes of these FYAs, the cap in relation to a large investment project is calculated with reference to the new FYAs alone.  This means that companies with a choice between the new FYAs and other forms of State aid for the same “single investment project” must effectively choose whether to claim the FYA or another State subsidy.  If, however, a company that had claimed the new FYAs in one year, only became aware in the next that another State grant would have been more beneficial, then it could still claim the grant, but then the next subsection 45M(8) would apply and the FYAs would become repayable.

23.New sections 45M(8) to (11) provide that if a relevant grant or payment is made after the making of the new FYA allowance, the allowance is to be withdrawn if the relevant grant or payment is made towards the expenditure. If the relevant grant or payment is made toward any other expenditure incurred on the same “single investment project” (which term has the same meaning as in the GBER) then the relief is only withdrawn if the relevant grant or payment is made within 3 years of the qualifying expenditure being incurred.  Provision is made for all necessary assessments and adjustments to be made for this purpose. In addition, a person who has made a return, who becomes aware that anything in the return has become incorrect because of the operation of this section, must give notice to an Officer of Revenue and Customs of the necessary amendment, within 3 months of first becoming aware of it.

24.New section 45M(12) defines various terms used in new section 45M.

25.New section 45M(13) makes it clear that any reference to State aid in the section is not to be read narrowly, so as to apply only to State aid that is required to be notified to, and approved by, the European Commission. So, for example, State aid that is brought within the terms of the GBER, so that it is exempt from prior notification, is still a relevant grant or payment.

26.New section 45M(15) states that the Treasury may, by order, make such provision to amend new section 45M as appears to them appropriate to give effect to any future amendments to, or instruments replacing, the particular European Regulations, Guidelines, Directive or Treaty, listed in this new subsection.

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