Finance Bill

House of Commons

Session 2004 - 05
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Finance Bill

Finance Bill
Schedule 12 — Capital allowances: renovation of business premises in disadvantaged areas
Part 1 — New Part 3A of the Capital Allowances Act 2001
223

1 Balancing Event
2 Proceeds from event

2 The grant of a long lease out of
If the capital sum paid in

the relevant interest.
consideration of the grant is less

than the commercial premium, the

commercial premium.

5

In any other case, the capital sum

paid in consideration of the grant.

3 The coming to an end of a lease,
The market value of the relevant

where a person entitled to the
interest in the qualifying building

lease and a person entitled to any
at the time of the event.

10

superior interest are connected

persons.

4 The death of the person who
The residue of qualifying

incurred the qualifying
expenditure immediately before

expenditure.
the death.

15

5 The demolition or destruction of
The net amount received for the

the qualifying building.
remains of the qualifying

building, together with—

(a)
any insurance money

received in respect of the

20

demolition or destruction,

and

(b)
any other compensation of

any description so

received, so far as it

25

consists of capital sums.

6 The qualifying building ceases to
The market value of the relevant

be qualifying business premises.
interest in the qualifying building

at the time of the event.

(2)
The amounts referred to in column 2 of the Table are those received
30
or receivable by the person who incurred the qualifying expenditure.
(3)
In Item 2 of the Table “the commercial premium” means the
premium that would have been given if the transaction had been at
arm’s length.
360P
Calculation of balancing adjustments
35
(1)
A balancing allowance is made if—
(a)
there are no proceeds from the balancing event, or
(b)
the proceeds from the balancing event are less than the
residue of qualifying expenditure immediately before the
event.
40
(2)
The amount of the balancing allowance is the amount of—
(a)
the residue (if there are no proceeds);
(b)
the difference (if the proceeds are less than the residue).

Finance Bill
Schedule 12 — Capital allowances: renovation of business premises in disadvantaged areas
Part 1 — New Part 3A of the Capital Allowances Act 2001
224

(3)
A balancing charge is made if the proceeds from the balancing event
are more than the residue, if any, of qualifying expenditure
immediately before the event.
(4)
The amount of the balancing charge is the amount of—
(a)
the difference, or
5
(b)
the proceeds (if the residue is nil).
(5)
The amount of a balancing charge made on a person must not exceed
the total amount of—
(a)
any initial allowances made to the person in respect of the
expenditure, and
10
(b)
any writing-down allowances made to the person in respect
of the expenditure for chargeable periods ending on or before
the date of the balancing event giving rise to the balancing
adjustment.
CHAPTER 9
15
WRITING OFF QUALIFYING EXPENDITURE
360Q
Introduction
For the purposes of this Part qualifying expenditure is written off to
the extent and at the times specified in this Chapter.
360R
Writing off initial allowances and writing-down allowances
20
(1)
If an initial allowance is made in respect of the qualifying
expenditure, the amount of the allowance is written off at the time
when the qualifying business premises are first used, or suitable for
letting for use, for either of the purposes mentioned in section
360D(1)(b).
25
(2)
If a writing-down allowance is made in respect of the qualifying
expenditure, the amount of the allowance is written off at the end of
the chargeable period for which the allowance is made.
(3)
If a balancing event occurs at the end of the chargeable period
referred to in subsection (2), the amount written off under that
30
subsection is to be taken into account in calculating the residue of
qualifying expenditure immediately before the event to determine
what balancing adjustment (if any) is to be made.
360S
Treatment of demolition costs
(1)
This section applies if—
35
(a)
a qualifying building is demolished, and
(b)
the person who incurred the qualifying expenditure incurs
the cost of the demolition.
(2)
The net cost of the demolition is added to the residue of qualifying
expenditure immediately before the demolition.
40
(3)
“The net cost of the demolition” means the amount, if any, by which
the cost of the demolition exceeds any money received for the
remains of the qualifying building.

Finance Bill
Schedule 12 — Capital allowances: renovation of business premises in disadvantaged areas
Part 1 — New Part 3A of the Capital Allowances Act 2001
225

(4)
If this section applies, neither the cost of the demolition nor the net
cost of the demolition is treated for the purposes of any Part of this
Act as expenditure on any other property replacing the qualifying
building demolished.
CHAPTER 10
5
ADDITIONAL VAT LIABILITIES AND REBATES
360T
Introduction
For the purposes of this Chapter—
(a)
“additional VAT liability” and “additional VAT rebate” have
the meanings given by section 547,
10
(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
15
additional VAT liability or an additional VAT rebate accrues
are given by section 549.
360U
Additional VAT liabilities and initial allowances
(1)
This section applies if—
(a)
a person was entitled to an initial allowance under this Part
20
in respect of qualifying expenditure on a qualifying building,
(b)
that person incurs an additional VAT liability in respect of
that expenditure, and
(c)
the additional VAT liability is incurred at a time when the
qualifying building is, or is about to be, qualifying business
25
premises.
(2)
If this section applies, the person entitled to the relevant interest is
entitled to an initial allowance on the amount of the additional VAT
liability.
(3)
The amount of the initial allowance is 100% of the amount of the
30
additional VAT liability.
(4)
A person claiming an initial allowance under this section may
require the allowance to be reduced to a specified amount.
(5)
The allowance is made for the chargeable period in which the
additional VAT liability accrues.
35
360V
Additional VAT liabilities and writing-down allowances
(1)
This section applies if the person entitled to the relevant interest in
relation to qualifying expenditure incurs an additional VAT liability
in respect of that expenditure.
(2)
If this section applies—
40
(a)
the additional VAT liability is treated as qualifying
expenditure, and

Finance Bill
Schedule 12 — Capital allowances: renovation of business premises in disadvantaged areas
Part 1 — New Part 3A of the Capital Allowances Act 2001
226

(b)
the amount of the residue of qualifying expenditure is
accordingly increased at the time when the liability accrues
by the amount of the liability.
360W
Additional VAT liabilities and writing off initial allowances
If an initial allowance is made in respect of an additional VAT
5
liability incurred after the qualifying business premises are first used
or suitable for letting for business use, the amount of the allowance
is written off at the time when the liability accrues.
360X
Additional VAT rebates and balancing adjustments
(1)
If an additional VAT rebate is made in respect of qualifying
10
expenditure to the person entitled to the relevant interest in relation
to that qualifying expenditure—
(a)
the making of the rebate is a balancing event for the purposes
of this Part, but
(b)
the making of balancing adjustments as a result of the event
15
is subject to subsections (2) and (3).
(2)
No balancing allowance is to be made as a result of the event.
(3)
A balancing charge is not to be made as a result of the event unless—
(a)
the amount of the additional VAT rebate is more than the
amount of the residue of qualifying expenditure immediately
20
before the time when the rebate accrues, or
(b)
there is no such residue.
(4)
The amount of the balancing charge is—
(a)
the amount of the difference, or
(b)
the amount of the rebate (if there is no residue).
25
360Y
Additional VAT rebates and writing off qualifying expenditure
If an additional VAT rebate is made in respect of qualifying
expenditure, an amount equal to the rebate is written off at the time
when the rebate accrues.
CHAPTER 11
30
SUPPLEMENTARY PROVISIONS
360Z
Giving effect to allowances and charges: trades
(1)
An allowance or charge to which a person is entitled or liable under
this Part is to be given effect in calculating the profits of that person’s
trade, by treating—
35
(a)
the allowance as an expense of the trade, and
(b)
the charge as a receipt of the trade.
(2)
In the case of a person who—
(a)
is entitled to an allowance or liable to a charge in respect of a
qualifying building, and
40
(b)
occupies that building in the course of a profession or
vocation,

Finance Bill
Schedule 12 — Capital allowances: renovation of business premises in disadvantaged areas
Part 1 — New Part 3A of the Capital Allowances Act 2001
227


the references in subsection (1) to a trade are to be read as references
to the profession or vocation.
(3)
Subsection (1) is subject to the following provisions of this Chapter.
360Z1
Giving effect to allowances and charges: lessors and licensees
(1)
This section applies if—
5
(a)
a person is entitled or liable to an allowance or charge under
this Part for a chargeable period (“the relevant period”), but
(b)
his interest in the building in question is or was subject to a
lease or a licence at any time in that period.
(2)
If the person’s interest in the building is an asset of a property
10
business carried on by him at any time in the relevant period, the
allowance or charge is to be given effect in calculating the profits of
that business for the relevant period by treating—
(a)
the allowance as an expense of that business, and
(b)
the charge as a receipt of that business.
15
(3)
If the person’s interest in the building is not an asset of a property
business carried on by him at any time in the relevant period, the
allowance or charge is to be given effect by treating him as if he had
been carrying on a property business in that period and as if—
(a)
the allowance were an expense of that business, and
20
(b)
the charge were a receipt of that business.
360Z2
Apportionment of sums partly referable to non-qualifying assets
(1)
If the sum paid for the sale of the relevant interest in a qualifying
building is attributable—
(a)
partly to assets representing expenditure for which an
25
allowance can be made under this Part, and
(b)
partly to assets representing other expenditure,

only so much of the sum as on a just and reasonable apportionment
is attributable to the assets referred to in paragraph (a) is to be taken
into account for the purposes of this Part.
30
(2)
Subsection (1) applies to other proceeds from a balancing event in
respect of a qualifying building as it applies to a sum given for the
sale of the relevant interest in the qualifying building.
(3)
Subsection (1) does not affect any other provision of this Act
requiring an apportionment of the proceeds of a balancing event.
35
360Z3
Provisions applying on termination of lease
(1)
This section applies for the purposes of this Part if a lease is
terminated.
(2)
If, with the consent of the lessor, the lessee of the qualifying building
remains in possession of the qualifying building after the
40
termination without a new lease being granted to him, the lease is
treated as continuing so long as the lessee remains in possession.
(3)
If on the termination a new lease is granted to a lessee as a result of
the exercise of an option available to him under the terms of the first
lease, the second lease is treated as a continuation of the first.
45

Finance Bill
Schedule 12 — Capital allowances: renovation of business premises in disadvantaged areas
Part 2 — Consequential amendments
228

(4)
If on the termination the lessor pays a sum to the lessee in respect of
business premises comprised in the lease, the lease is treated as if it
had come to an end by surrender in consideration of the payment.
(5)
If on the termination—
(a)
another lease is granted to a different lessee, and
5
(b)
in connection with the transaction that lessee pays a sum to
the person who was the lessee under the first lease,
the two leases are to be treated as if they were the same lease
which had been assigned by the lessee under the first lease to the
lessee under the second lease in consideration of the payment.
10
360Z4
Meaning of “lease” etc.
(1)
In this Part “lease” includes—
(a)
an agreement for a lease if the term to be covered by the lease
has begun, and
(b)
any tenancy,
15

but does not include a mortgage (and “lessee”, “lessor” and
“leasehold interest” are to be read accordingly).
(2)
In the application of this Part to Scotland—
(a)
“leasehold interest” or “leasehold estate” means the interest
of a tenant in property subject to a lease, and
20
(b)
any reference to an interest which is reversionary on a
leasehold interest or on a lease is to be read as a reference to
the interest of the landlord in the property subject to the
leasehold interest or lease.”
Part 2
25
Consequential amendments
2
In section 1(2) of CAA 2001 (capital allowances provided for by Act), after
paragraph (b) insert—
“(ba)
Part 3A (business premises renovation allowances)”.
3
In section 2(3) of CAA 2001 (provisions about giving effect to allowances and
30
charges), after the entry in the list for sections 352 to 355 of that Act insert—
“sections 360Z and 360Z1 (business premises renovation
allowances)”.
4
In section 3 of CAA 2001 (claims for capital allowances) after subsection (2)
insert—
35
   “(2A)
Any claim for an allowance under Part 3A (business premises
renovation allowances) must be separately identified as such in
the return.”
5
In section 537(1) of CAA 2001 (general conditions for making contribution
allowances under Parts 2 to 4 and 5), and in the section heading and the
40
cross-heading preceding that section, for “Parts 2 to 4 and 5” substitute
“Parts 2, 3, 4 and 5”.
6
In section 546 of CAA 2001 (interpretation of VAT provisions), before the

Finance Bill
Schedule 13 — Avoidance involving financial arrangements
229

“and” at the end of paragraph (b) insert—
“(ba)
Chapter 10 of Part 3A (business premises renovation
allowances: additional VAT liabilities and rebates),”.
7
In section 567(1) of CAA 2001 (Parts of Act for purposes of which provisions
about sales not at market value apply), after “3,” insert “3A,”.
5
8
In section 570(1) of CAA 2001 (elections under section 569 of that Act:
supplementary), after “Part” insert “3A,”.
9
In section 570A(1) of CAA 2001 (avoidance affecting proceeds of balancing
event), after “3,” insert “, 3A”.
10
In section 573(1) of CAA 2001 (transfers treated as sales), after “3,” insert
10
“3A,”.
11    (1)
Part 2 of Schedule 1 to CAA 2001 (list of defined expressions) is amended as
follows.
      (2)
Insert the following entries in the appropriate places—

“balancing adjustment (in Part 3A)
section 360M”

15

“balancing event (in Part 3A)
section 360N”

“lease and related expressions (in
section 360Z4”

Part 3A)

“proceeds from a balancing event
section 360O”

(in Part 3A)

20

“qualifying building (in Part 3A)
section 360C”

“qualifying business premises (in
section 360D”

Part 3A)

“qualifying expenditure (in Part
section 360B”

3A)

25

“relevant interest (in Part 3A)
Chapter 4 of Part 3A”

“residue of qualifying expenditure
section 360K”

(in Part 3A)

      (3)
In the entry for “sale, transfers under Parts 3, 4, 4A and 10 treated as”, after
“3” insert “, 3A”.
30
Schedule 13
Section 133

Avoidance involving financial arrangements
Rent factoring
1     (1)
Part 2 of ICTA (which, at sections 43A to 43G, includes provisions about rent
factoring) is amended as follows.
35