Capital Allowances Act 2001 (c. 2)

Part 6 Research and development allowances

Chapter 4 Additional VAT liabilities and rebates

446 Introduction

For the purposes of this Chapter—

(a) “additional VAT liability” and “additional VAT rebate” have the meaning given by section 547,

(b) the time when—

(i) a person incurs an additional VAT liability, or

(ii) an additional VAT rebate is made to a person,

is given by section 548, and

(c) the chargeable period in which, and the time when, an additional VAT liability or an additional VAT rebate accrues are given by section 549.

447 Additional VAT liability treated as additional expenditure etc.

(1) If a person—

(a) has incurred qualifying expenditure (“the original expenditure”), and

(b) incurs an additional VAT liability in respect of that expenditure,

the liability is to be treated as capital expenditure incurred on the same research and development as the original expenditure.

(2) But subsection (1) does not apply if by the time the liability is incurred—

(a) the person who incurred the original expenditure has ceased to own the asset representing that expenditure, or

(b) that asset has been demolished or destroyed.

(3) Any allowance arising as a result of this section is available for—

(a) the chargeable period in which the liability accrues, or

(b) if the liability accrued before the chargeable period in which the relevant trade is set up and commenced, that chargeable period,

rather than for the relevant chargeable period specified in section 441(2).

448 Additional VAT rebate generates disposal value

(1) This section applies if—

(a) a person has incurred qualifying expenditure, and

(b) an additional VAT rebate is made to the person in respect of that expenditure.

(2) But this section does not apply if by the time the rebate is made—

(a) the person has ceased to own the asset representing that expenditure, or

(b) that asset has been demolished or destroyed.

(3) And this section does not apply if the rebate falls to be brought into account for the purpose of making allowances and charges under Part 2 or 3 (plant and machinery allowances and industrial buildings allowances).

(4) The person must bring the amount of the rebate into account—

(a) as a disposal value in respect of the qualifying expenditure for the appropriate chargeable period, or

(b) if the person would have to bring a disposal value into account under section 443(1) in respect of that expenditure for that chargeable period, as an addition to that disposal value.

(5) “Appropriate chargeable period” means—

(a) the chargeable period in which the rebate accrues, or

(b) if the rebate accrued before the chargeable period in which the relevant trade is set up and commenced, that chargeable period.

449 Effect on balancing charges of additional VAT rebates in earlier chargeable periods

(1) Section 442 (balancing charges) has effect subject to this section if—

(a) an allowance is made to a person for a chargeable period (“the original period”) in respect of qualifying expenditure,

(b) the person is required to bring a disposal value into account for a later chargeable period in respect of that expenditure, and

(c) the person has been required by section 448(4)(a) to bring one or more disposal values (“VAT disposal values”) into account in respect of that expenditure for one or more chargeable periods after the original period but before the later chargeable period.

(2) In relation to the later chargeable period, subsection (3)(a) of section 442 applies as if the unclaimed allowance were reduced by—

DV - BC

where—

• DV is the total amount of the VAT disposal values, and

• BC is the total amount of any balancing charges to which the person is liable under that section as a result of bringing into account the VAT disposal values.

(3) In relation to the later chargeable period, subsection (3)(b) of section 442 applies as if the allowance made in respect of the qualifying expenditure were reduced by BC.