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Corporation Tax (Northern Ireland) Act 2015

Section 2 and Schedule 1: Capital Allowances

107.Section 2 introduces Schedule 1, which contains amendments of CAA 2001.

Part 1 of Schedule 1

108.Part 1 amends CAA 2001 as set out in the rest of Schedule 1.

Part 2 of Schedule 1

109.Part 2 amends Part 1 of CAA 2001. Although it uses different terms, new section 6A inserted into Part 1 of CAA 2001 imports the definitions of Northern Ireland companies in Part 8B of CTA 2010 into CAA 2001. A “NIRE company” is a company where the large company condition applies and a “Northern Ireland SME company” is one where the SME condition applies.

110.There are also definitions in new section 6B(3) and (4) which refer to Northern Ireland firms (section 357WA) whose profits are determined under Chapter 6 or 7 of Part 8B of CTA 2010 respectively.

111.New section 6C also introduces the term “NI rate activity” for the purposes of CAA 2001. An activity, the profits or losses of which are Northern Ireland profits or losses under Part 8B of CTA 2010, is an “NI rate activity”.

112.Under new section 6D the NI rate activity is treated for the purposes of CAA 2001 as a separate trade, distinct from all other activities carried out by a NIRE company or a Northern Ireland SME company. The provision also provides that the NI rate activity carried on by a Northern Ireland firm is to be treated as a separate trade for the purposes of determining the profits of the firm under section 1259 of CTA 2009.

113.New section 6E sets out how allowances are given and charges imposed under the parts of CAA 2001 which deal with: plant and machinery allowances; business premises renovation allowances; mineral extraction allowances; research and development allowances; and dredging allowances. These rules also cover how allowances and charges are given effect in a company’s tax computation. In the case of an allowance or charge related to an NI rate activity, allowances or charges are treated as a deduction from, or addition to, the NI profits or losses of the period as appropriate. In the case of an allowance or charge related to a main rate activity, allowances or charges are treated as deductions from, or additions to, mainstream profits or losses of the period as appropriate.

Part 3 of Schedule 1

114.Part 3 provides for amendments to plant and machinery allowances under Part 2 of CAA 2001 to take account of the fact that an NI rate activity is subject to a different rate of corporation tax.

115.Paragraph 3 amends section 12 of CAA 2001 to ensure that, if a company incurs expenditure for the purposes of trade for an activity that will, on the company becoming a NIRE company, be an NI rate activity treated as a separate trade, any such expenditure will be treated as incurred on the first day the company is a NIRE company.

116.Similarly, paragraph 3 amends section 12 of CAA 2001 to provide that expenditure incurred by a partnership for the purposes of an activity that will, on the partnership becoming a Northern Ireland Chapter 7 firm, be an NI rate activity treated as a separate trade, will be treated as incurred on the first day the partnership is a Northern Ireland Chapter 7 firm.

117.Paragraph 4 inserts new subsections (2ZA) and (2ZB) into section 15 of CAA 2001. These rules ensure that activities carried out by a company or firm which are treated as separate trades are also treated for the purposes of Part 2 of CAA 2001 as separate qualifying activities.

118.Paragraph 5 inserts new section 51JA which provides for a restriction to Annual Investment Allowance (AIA) available under Chapter 5 of Part 2 of CAA 2001 where the AIA qualifying expenditure is incurred in respect of an NI rate activity in a financial year for which the Northern Ireland rate is lower than the main rate.

119.Paragraph 6 contains amendments of section 61 of CAA 2001 which deals with disposal events and disposal values. Their effect is that where an asset that is used for the purpose of a main rate activity is sold at less than market value to a company that is within the NI CT regime, the sale will in certain circumstances be treated as being at market value.

120.Paragraph 7 sets out new sections 66B, 66C, 66D and 66E. New section 66B ensures that a capital allowances disposal event will not arise where, in an accounting period which starts on or after the commencement day (again, as defined by section 5 of the Act), a company becomes a Northern Ireland SME company and as a result of section 15(2ZA) (as inserted by paragraph 4) any assets are treated as ceasing to be used for the purpose of a main rate activity and beginning to be used for the purposes of an NI rate activity.

121.There are also rules in new section 66B that govern how any unrelieved qualifying expenditure brought forward to the first period where a company has both a main rate activity and an NI rate activity is treated. This includes a just and reasonable apportionment of the unrelieved qualifying expenditure between a main rate activity pool and an NI rate activity pool.

122.New section 66C contains provision about the application to partnerships of the provisions of new section 66B.

123.New section 66D covers the situation where a company that was a Northern Ireland SME company starts to carry on a qualifying activity that is not an NI rate activity. A capital allowances disposal event will not arise in the case of any assets which are consequently treated as ceasing to be used for the purposes of an NI rate activity. Any unrelieved qualifying expenditure previously used for the purposes of an NI rate activity that is to be carried forward is treated as relating to the qualifying activity the company is carrying on.

124.New section 66E contains provision about the application to partnerships of the provisions of new section 66D.

125.Paragraph 8 inserts new Chapter 16ZA into CAA 2001.

126.New section 212ZA deals with qualifying expenditure on plant or machinery which is used partly for NI rate activity and partly for main rate activity. For the purposes of any annual investment allowance or first year allowance the expenditure is to be apportioned on a just and reasonable basis between the NI rate activity and main rate activity.

127.New section 212ZB requires that where qualifying expenditure is incurred partially for NI rate activity and partially for main rate activity (if it is to be allocated to a pool) it must be allocated to a single asset pool. Where a company is required to bring in a disposal value because an asset previously used for either NI rate activity or main rate activity begins to be used for both activities, an amount equivalent to the disposal value is allocated to a single asset pool for that chargeable period.

128.New section 212ZC deals with allowances and charges on expenditure in a single asset pool by applying a just and reasonable apportionment between the NI rate activity and the main rate activity.

129.New section 212ZD introduces rules dealing with the disposal value to be applied in the case of a significant change of circumstances affecting the use of plant or machinery in a single asset pool under section 212ZC.

130.New section 212ZE provides for the application of the new Chapter 16ZA to partnerships.

131.New section 212ZF defines the phrase “main rate activity” for the purposes of Chapter 16ZA.

132.Paragraph 9 of Schedule 1 amends section 247 of CAA 2001. The inserted subsection (1A) deals with the way in which plant and machinery allowances are given effect in the case of companies within the NI CT regime which have an NI rate activity. Allowances in respect of the NI rate activity are relieved as deductions against Northern Ireland profits of the relevant accounting period.

133.Paragraph 10 of Schedule 1 relates to first-year tax credits payable under Schedule A1 to CAA 2001.  It amends Schedule A1 so as to give the Treasury power by order to prescribe a different percentage where the surrenderable loss in question relates to an NI rate activity.

Part 4 of Schedule 1

134.In Part 4 of Schedule 1, paragraph 11 introduces amendments to section 360Z CAA 2001 to make it clear that where a company or partnership, because of its NI rate activity, is treated as carrying on two separate trades, any business premises renovation allowances, or corresponding charges, relate to the trade the qualifying building is used in. A just and reasonable apportionment applies where the building is used by both trades.

135.The amendment made by paragraph 12 relates to mineral extraction allowances. It amends section 394 to provide that where a company, because of its NI rate activity, is treated as carrying on two separate trades, both trades will be treated as mineral extraction trades if the separate trades together would be so treated. Any allowance or charge applies separately to each trade.

136.Paragraph 13 amends section 432 so as to provide that mineral extraction allowances are given effect, in the case of a Northern Ireland SME company or a NIRE company, in accordance with section 6E (as inserted by paragraph 2 of Schedule 1 to the Act).

137.Paragraph 14 inserts new section 439A which governs how research and development allowances will be treated where a company or partnership incurs expenditure for the purpose of a trade on an activity that will, upon the company becoming a NIRE company, be an NI rate activity treated as a separate trade. Any such expenditure will be treated as incurred on the first day the company is a NIRE company.

138.Paragraph 15 amends section 450 so as to provide that research and development allowances are given effect, in the case of a Northern Ireland SME company or a NIRE company, in accordance with section 6E (as inserted by paragraph 2).

139.Paragraph 16 amends section 484 so as to provide for the purposes of dredging allowances that, where a company, because of its NI rate activity, is treated as carrying on two separate trades, both trades will be treated as qualifying trades if the separate trades together would be so treated.

140.Paragraph 17 amends section 489 so as to provide that dredging allowances are given effect, in the case of a Northern Ireland SME company or a NIRE company, in accordance with section 6E (as inserted by paragraph 2).

Parts 5 and 6 of Schedule 1

141.Part 5 provides for consequential amendments of CAA 2001.

142.Part 6 sets out rules to cover the transition to the Northern Ireland corporation tax regime for the purposes of CAA 2001.

143.Paragraph 19 defines the “transition period” for a company as the first accounting period in which the Northern Ireland rate applies to the corporation tax profits and losses of a company or partnership.

144.Paragraph 20 applies to a company or partnership if in the transition period a company is a NIRE company or Northern Ireland SME company or the partnership is a NI Chapter 6 or Chapter 7 firm (as defined by new section 6B, inserted by paragraph 2 of Schedule 1 to the Act). It applies if, as a result of section 6D of CAA 2001 (inserted by paragraph 2), an NI rate activity begins to be treated for the purposes of Part 2 of CAA 2001 (plant and machinery) as a separate qualifying activity. Paragraph 20 provides that any unrelieved qualifying expenditure on plant and machinery to be carried forward into the transition period is to be apportioned on a just and reasonable basis into separate pools for purposes of the NI rate activity and main rate activity. The paragraph provides that this does not create a disposal event.

145.Paragraph 21 also applies to a company or partnership if in the transition period a company is a NIRE company or Northern Ireland SME company or the partnership is a NI Chapter 6 or Chapter 7 firm. It applies if, as a result of section 6D of CAA 2001, an NI rate activity begins to be treated for the purposes of Part 7 of CAA 2001 (know-how allowances) as a separate qualifying activity. Paragraph 21 provides that any unrelieved qualifying expenditure on know-how to be carried forward into the transition period is to be apportioned on a just and reasonable basis into separate pools for purposes of the NI rate activity and main rate activity.

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