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Finance Act 2014

Details of the Schedule

2.Schedule 13 amends the following sections of the Capital Allowances Act 2001 (CAA):

  • Section 45DB – exclusions from allowances under section 45DA.

  • Section 45K - expenditure on plant and machinery for use in designated assisted areas (enterprise zone allowances).

  • Section 45M – exclusions from allowances under section 45K.

  • Section 45N – effect of plant or machinery subsequently being primarily for use outside designated assisted areas.

  • Section 212T – cap on first-year allowances: zero-emission goods vehicles.

  • Section 212U – cap on first-year allowances: expenditure on plant and machinery for use in designated assisted areas.

3.Paragraph 1 provides for changes to be made to the Capital Allowances Act 2001.

4.Paragraph 2 amends various reference in subsections 45DB(3)(a), 4(a), (11) and (12). It amends the definition of firm in difficulty to refer to an undertaking in difficulty for the purposes of the new GBER. It also updates various existing references so that they correctly cross-refer to the new GBER.

5.Paragraph 3 amends section 45K. Section 45K provides that five conditions, A to E, must be met if expenditure is to qualify for enhanced capital allowances. Condition C at section 45K(8) requires that qualifying expenditure must be incurred on plant and machinery used: (a) for a business of a kind not previously carried on by the company; (b) expanding a business carried on by the company; or (c) starting up an activity which relates to a fundamental change in a product or production process of, or service provided by, a business carried on by the company.

6.Paragraph 3 inserts new subsections (8A) and (8B). These provide that subsection (8)(c) can only be satisfied if the expenditure incurred on the plant and machinery required to change the product, production process or service in question exceeds the depreciation of the plant and machinery being replaced or modernised over the three previous years. This complies with Article 14(7) of the new GBER.

7.For example, a machine used in the existing production process was purchased for £500,000 and had a useful life of 10 years and was depreciated in the accounts on that basis, i.e. £50,000 per year. The new machine must cost at least £150,000 to satisfy new subsection (8A).

8.Paragraph 4(1) provides for various changes to be made to section 45M. Section 45M sets out certain situations when expenditure does not qualify for enhanced capital allowances. The changes exclude certain types of expenditure and provide that expenditure by large businesses in certain enterprise zones must be on new activities only.

9.Paragraphs 4(2) to (4) and (6) make various amendments to subsections 45M(1), (3), (4) and (6) to comply with the new GBER by including a number of additional sectors in which expenditure does not qualify for enhanced capital allowances. These include expenditure incurred on energy generation, distribution or infrastructure and the development of broadband networks. The scope of the existing exclusion on certain activities in the transport sector is also widened.

10.Paragraph 4(5) inserts a new subsection 45M(4A). This provides that the various expressions in subsection (4) take the meaning used in the new GBER.

11.Paragraph 4(7) inserts a new subsection 45M(7A). This complies with Article 14(3) of the new GBER. It provides that qualifying expenditure incurred by large enterprises in enterprise zones that fall within assisted areas that are classified by the European Commission as being Article 107(3)(c) areas only qualifies for enhanced capital allowances if it relates to “a business of a kind not previously carried on by the company”, i.e new activities.

12.Assisted areas fall within either Article 107(3)(a) or Article 107(3)(c) of the Treaty on the Functioning of the European Union (with Article 107(3)(a) areas having a lower per capita gross domestic product than Article 107(3)(c) areas).

13.Paragraphs 4(8) and (9) update and clarify the definitions given in subsections 45M(12) and (15).

14.Paragraph 5 amends section 45N(1), and inserts a new subsection (3A). This ensures that where a large enterprise has claimed enhanced capital allowances for expenditure incurred on plant and machinery in an Article 107(3)(a) area for a purpose under either section 45K(8)(b) or (c), that plant or machinery must be used by the person claiming the allowance (or a connected person) for at least 5 years within such an area.

15.If, within that period, the person begins to use the plant or machinery primarily outside such an area, the allowance will be withdrawn and the expenditure will be treated as never having qualified for enhanced capital allowances. This section is designed to prevent exploitation and satisfy the requirements of the new GBER.

16.Paragraphs 6 and 7 update the references in sections 212T and 212U to the new GBER.

17.Paragraph 8 provides that these amendments take effect from Royal Assent.

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