Finance Bill - continued        House of Commons
PART III, INCOME TAX, CORPORATION TAX AND CAPITAL GAINS TAX - continued
Capital allowances - continued

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First year allowances for ICT expenditure by small enterprises.     70. - (1) In section 22 of the Capital Allowances Act 1990 (first-year allowances), after subsection (3D) insert-
 
 
    "(3E) This section applies to-
 
 
    (a) any expenditure on information and communications technology which, disregarding any effect of section 83(2) on the time at which it is to be treated as incurred, is incurred by a small enterprise in the period beginning with 1st April 2000 and ending with 31st March 2003; and
 
    (b) any additional VAT liability incurred in respect of expenditure to which this section applies by virtue of paragraph (a) above.
      (3F) For the purposes of subsection (3E) above expenditure on information and communications technology means expenditure on items within any of the classes set out in subsection (3G) below.
 
      (3G) The classes referred to in subsection (3F) above are as follows:
 A. Computers and associated equipment
  This class covers-
 
 
    (a) computers,
 
    (b) peripheral devices designed to be used by being connected to or inserted in a computer,
 
    (c) equipment (including cabling) for use primarily to provide a data connection-
 
      (i) between one computer and another, or
 
      (ii) between a computer and a data communications network,
 
    (d) dedicated electrical systems for computers.
  For this purpose "computer" does not include computerised control or management systems or other systems that are part of a larger system whose principal function is not processing or storing information.
B. Other qualifying equipment  
  This class covers-
 
 
    (a) wireless application protocol telephones,
 
    (b) third generation mobile telephones,
 
    (c) devices designed to be used by being connected to a television set that are capable of receiving and transmitting information from and to data networks, and
 
    (d) other devices substantially similar to those within paragraphs (a), (b) and (c) that are capable of receiving and transmitting information from and to data networks.
  This is subject to any order under subsection (3H) below.
C. Software  
  This class covers the right to use or otherwise deal with software for the purposes of any equipment within Class A or B above.
 
      (3H) The Treasury may make provision by order-
 
 
    (a) further defining the descriptions of equipment within Class B in subsection (3G), or
 
    (b) adding further descriptions of equipment to that class.".
      (2) In sections 22(4), (6B) and (6C), 23(6), 42(9) and 50(3) and (4A) of that Act, for "and (3D)" substitute ", (3D) and (3E)".
 
      (3) In sections 43(5), 44(5), 46(8) and 48(7) of that Act, for "or (3D)" substitute ", (3D) or (3E)".
 
      (4) In section 39(2)(a) of that Act for "to (3D)" substitute "to (3E)".
 
Expenditure of a small enterprise.     71. After section 22A of the Capital Allowances Act 1990, insert-
 
 
"Expenditure of a small enterprise.     22AA. - (1) For the purposes of section 22 capital expenditure incurred by a company is capital expenditure incurred by a small enterprise if the company-
 
    (a) qualifies as small in relation to the financial year of the company in which the expenditure is incurred, and
 
    (b) is not a member of a large or medium-sized group at the time when the expenditure is incurred.
      (2) For the purposes of section 22, capital expenditure is capital expenditure incurred by a small enterprise if-
 
 
    (a) it is incurred by a business for the purposes of a trade (the "first trade") carried on by that business, and
 
    (b) were the first trade carried on by a company (the "hypothetical company") in the circumstances set out in subsection (3) below, that company would qualify as small in relation to the financial year of that company in which the expenditure would be treated as incurred.
      (3) Those circumstances are-
 
 
    (a) that every trade, profession or vocation carried on by the business concerned is carried on by the business as a part of the first trade,
 
    (b) that the financial years of the hypothetical company coincide with the chargeable periods of the business concerned, and
 
    (c) that accounts of the hypothetical company for any relevant chargeable period were prepared in accordance with the requirements of the Companies Act 1985 as if that period were a financial year of the company.
      (4) Subject to subsection (5) below, a company is a member of a large or medium-sized group at the time when any expenditure is incurred if -
 
 
    (a) it is at that time the parent undertaking of a group which does not qualify as small in relation to the financial year of the parent company in which that time falls; or
 
    (b) it is at that time a subsidiary undertaking in relation to the parent undertaking of such a group.
      (5) If, at the time when any expenditure is incurred by any company any arrangements exist which are such that, had effect been given to them immediately before that time, the company or a successor of the company would, at that time, have been a member of a large or medium-sized group, this section shall have effect as if the company concerned was a member of a large or medium-sized group at that time.
 
      (6) In this section the following expressions have the same meaning as in section 22A above: "arrangements", "business", "company", "financial year", "group", "parent undertaking" and "subsidiary undertaking".
 
      (7) References in this section, in relation to a company, to its qualifying as small-
 
 
    (a) except in the case of a company formed and registered in Northern Ireland, are references to its so qualifying, or being treated as so qualifying, for the purposes of section 247 of the Companies Act 1985; and
 
    (b) in the case of a company so formed and registered, are references to a company so qualifying, or being treated as so qualifying, for the purposes of Article 255 of the Companies (Northern Ireland) Order 1986.
      (8) In relation to a company with respect to which the question arises whether it is or would be a member of a large or medium-sized group, references to a group's qualifying as small-
 
 
    (a) except in the case of a company formed and registered in Northern Ireland, are references to its so qualifying, or being treated as so qualifying, for the purposes of section 249 of the Companies Act 1985; and
 
    (b) in the case of a company so formed and registered, are references to its so qualifying, or being treated as so qualifying, for the purposes of Article 257 of the Companies (Northern Ireland) Order 1986;
  but for the purposes of this section each of those provisions shall be construed as if references, in relation to a group, to the parent company were references to the parent undertaking.
 
      (9) For the purposes of this section a company is the successor of another if-
 
 
    (a) it carries on a trade which, in whole or in part, the other company has ceased to carry on, and
 
    (b) the circumstances are such that section 343 of the principal Act applies in relation to the two companies as the predecessor and the successor within the meaning of that section.".
Repeal of notification requirements.     72. - (1) In section 118 of the Finance Act 1994 (notification requirements)-
 
 
    (a) subsections (1) to (5) and (7) to (9) shall cease to have effect; and
 
    (b) in subsection (6), for "the provisions mentioned in subsection (2) above" there shall be substituted-
 
    "(a) section 25(1) of the Capital Allowances Act 1990 (meaning of qualifying expenditure for the purposes of writing-down allowances for expenditure on machinery or plant); and
 
    (b) section 44(4) of the Finance Act 1971 (provision corresponding to section 25(1) applicable to earlier chargeable periods),".
      (2) This section has effect for chargeable periods as respects which the period specified in subsection (3A) of that section ends on or after 1st April 2000.
 
Pool for certain leased assets and inexpensive cars.     73. - (1) In section 41 of the Capital Allowances Act 1990 (writing-down allowances etc for leased assets and inexpensive cars)-
 
 
    (a) in subsection (1), paragraphs (b) and (c) and the word "or" at the end of paragraph (a); and
 
    (b) in subsection (4), paragraph (a) and, in paragraph (b), the words from "or within (1)(b) or (c)" to "subsection (1)(c)" and the words "or subsection (1)(b) or (c)",
  shall cease to have effect for chargeable periods ending on or after the relevant date.
 
      (2) Subsection (3) below applies where-
 
 
    (a) immediately before the end of the relevant chargeable period, a person was treated for the purposes of sections 24, 25 and 26 of the Capital Allowances Act 1990 as having incurred expenditure on the provision of machinery or plant wholly and exclusively for the purposes of a separate trade carried on by him;
 
    (b) the expenditure fell within subsection (1)(b) or (c) of section 41 of that Act; and
 
    (c) qualifying expenditure in respect of the separate trade for the relevant chargeable period exceeded any disposal value brought into account in respect of that trade for that period.
      (3) The balance of the excess (after the deduction of any writing-down allowances made by reference to it) shall be treated for the purposes of sections 24, 25 and 26 of the Capital Allowances Act 1990 as capital expenditure which-
 
 
    (a) was incurred by that person in the relevant chargeable period on the provision of the machinery or plant for the purposes of the trade which is the actual trade for the purposes of section 41 of that Act; and
 
    (b) does not form part of his qualifying expenditure for that period.
      (4) In this section-
 
 
    "the relevant chargeable period" means the chargeable period immediately preceding that which begins on or before and ends on or after the relevant date;
 
    "the relevant date" means, subject to subsection (5) below, 6th April 2000 for the purposes of income tax and 1st April 2000 for the purposes of corporation tax.
      (5) A person may, by a notice given to an officer of the Board, elect that this section shall have effect in relation to any trade carried on by him as if the relevant date were 6th April 2001 or, as the case may be, 1st April 2001.
 
Machinery and plant allowances for non-residents etc.     74. - (1) In section 83 of the Capital Allowances Act 1990 (interpretation of Part II), after subsection (2) there shall be inserted-
 
 
    "(2A) In this Part (except in Chapter V and sections 64A and 75 to 78), references-
 
 
    (a) to a trade, or
 
    (b) to activities falling in accordance with section 28A, 29 or 61 to be treated as a trade,
  shall be construed as if activities were capable of being comprised in a trade, or of being treated as a trade, to the extent only that they are activities the profits or gains from which are, or (if there were any) would be, chargeable to income tax or corporation tax.".
 
      (2) After section 79 of that Act there shall be inserted-
 
 
"Reduction in qualifying use.     79A. - (1) This section applies where-
 
    (a) any expenditure falls, for the purposes of making allowances or charges, to be treated in accordance with section 79 as incurred on the provision of machinery or plant for the purposes of a notional trade;
 
    (b) there is such a change of circumstances as would make it appropriate for any reduction falling to be made under subsection (5) of that section-
 
      (i) for the chargeable period in which the change takes place ("the relevant chargeable period"), or
 
      (ii) for any subsequent chargeable period,
 
    to represent a larger proportion of the amount reduced than would have been appropriate apart from the change;
 
    (c) no disposal value in respect of the machinery or plant would, apart from this section, fall to be brought into account for the relevant chargeable period; and
 
    (d) the open market value of the machinery or plant at the end of the relevant chargeable period exceeds the qualifying expenditure in respect of the notional trade for that period by more than £1 million.
      (2) It shall be assumed that the notional trade is permanently discontinued immediately before the end of the relevant chargeable period.
 
      (3) Section 79(3) shall have effect as if immediately after the beginning of the following chargeable period expenditure had been incurred on the provision of the machinery or plant of an amount equal to the disposal value brought into account by virtue of subsection (2) above.
 
      (4) In this section "open market value" has the same meaning as in section 76.".
 
      (3) In section 81 of that Act (effect of bringing an asset into use for the purposes of a trade after it has been used for a purpose that does not attract capital allowances), after subsection (2) there shall be inserted-
 
 
    "(2AA) Where-
 
 
    (a) a person is treated by virtue of subsection (1)(a) above as having incurred capital expenditure on the provision of machinery or plant, and
 
    (b) the sum which (apart from this subsection) would be taken to be the amount of that expenditure is more than the amount of capital expenditure actually incurred by that person on the provision of the machinery or plant,
  the amount of the capital expenditure treated by virtue of subsection (1)(a) above as incurred on the provision of the machinery or plant shall be deemed (subject to subsection (2AB) below) to be equal to the amount actually so incurred by that person.
 
      (2AB) Where any of the amount of capital expenditure actually incurred on the provision of the machinery or plant by the person in question would have fallen by virtue of section 75, 76 or 76A to be disregarded for the purposes of sections 24, 25 and 26 had it been in consequence of that expenditure that the machinery or plant was provided for the purposes of a trade, the references in subsection (2AA) above to that amount shall be construed as references to only so much of that expenditure as would not have fallen to be so disregarded.".
 
      (4) In Schedule 19AC to the Taxes Act 1988 (overseas life insurance companies), in paragraph 10B (modifications of section 440), after sub-paragraph (2) there shall be inserted-
 
 
    "(2A) The following subsection shall be treated as inserted after subsection (4)-
 
"     (4AA) Section 81 of the 1990 Act (as it has effect by virtue of section 83(2A) of that Act) shall apply in relation to any case in which an asset or part of an asset held by an overseas life insurance company-
 
    (a) ceases to be within the category set out in paragraph (h) of subsection (4) above; and
 
    (b) at the same time comes within another of the categories set out in that subsection.".".
      (5) In section 53 of the Capital Allowances Act 1990-
 
 
    (a) in subsection (1), paragraph (bb) (which, for the purposes of making allowances in respect of machinery or plant subject to equipment leasing, requires the equipment lessee to be within the charge to tax) shall cease to have effect; and
 
    (b) in subsection (1B)(b), for "paragraphs (bb) and" there shall be substituted "paragraph".
      (6) In this section-
 
 
    (a) subsections (1), (4) and (5) have effect for chargeable periods ending on or after 21st March 2000;
 
    (b) subsection (2) has effect where the change of circumstances occurs on or after that date; and
 
    (c) subsection (3) has effect where the condition mentioned in section 81(1)(a) of that Act is fulfilled on or after that date.
Production animals.     75. - (1) Section 82 of the Capital Allowances Act 1990 (capital expenditure to which Part II does not apply) shall be renumbered as subsection (1) of that section; and after that provision as so renumbered there shall be inserted-
 
 
    "(2) This Part shall not apply to capital expenditure-
 
 
    (a) on animals or other creatures to which Schedule 5 to the principal Act (treatment of farm animals etc for purposes of Case I of Schedule D) applies; or
 
    (b) on shares in such animals or creatures.".
      (2) In paragraph 9(4) of Schedule 5 to the Taxes Act 1988 (treatment of farm animals etc for purposes of Case I of Schedule D), for the words from "in relation to animals" to the end there shall be substituted-
 
 
    "(a) in relation to animals or other creatures kept singly as they apply in relation to herds; and
 
    (b) in relation to shares in animals or other creatures as they apply in relation to animals or other creatures themselves.".
      (3) The enactments amended by subsections (1) and (2) above shall be deemed always to have had effect with the amendments made by those subsections.
 
 
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