Finance (No. 2) Bill

House of Commons

Session 2004 - 05
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Finance (No. 2) Bill

Finance (No. 2) Bill
Schedule 6 — Capital allowances: renovation of business premises in disadvantaged areas
Part 1 — New Part 3A of the Capital Allowances Act 2001
136

(c)
the additional VAT liability is incurred at a time when the
qualifying building is, or is about to be, qualifying business
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
5
liability.
(3)
The amount of the initial allowance is 100% of the amount of the
additional VAT liability.
(4)
A person claiming an initial allowance under this section may
require the allowance to be reduced to a specified amount.
10
(5)
The allowance is made for the chargeable period in which the
additional VAT liability accrues.
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
15
in respect of that expenditure.
(2)
If this section applies—
(a)
the additional VAT liability is treated as qualifying
expenditure, and
(b)
the amount of the residue of qualifying expenditure is
20
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
liability incurred after the qualifying business premises are first used
25
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
expenditure to the person entitled to the relevant interest in relation
30
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
is subject to subsections (2) and (3).
35
(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
before the time when the rebate accrues, or
40
(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).

Finance (No. 2) Bill
Schedule 6 — Capital allowances: renovation of business premises in disadvantaged areas
Part 1 — New Part 3A of the Capital Allowances Act 2001
137

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
5
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—
10
(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
15
(b)
occupies that building in the course of a profession or
vocation,

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.
20
360Z1
Giving effect to allowances and charges: lessors and licensees
(1)
This section applies if—
(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
25
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
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—
30
(a)
the allowance as an expense of that business, and
(b)
the charge as a receipt of that business.
(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
35
been carrying on a property business in that period and as if—
(a)
the allowance were an expense of that business, and
(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
40
building is attributable—
(a)
partly to assets representing expenditure for which an
allowance can be made under this Part, and
(b)
partly to assets representing other expenditure,

Finance (No. 2) Bill
Schedule 6 — Capital allowances: renovation of business premises in disadvantaged areas
Part 1 — New Part 3A of the Capital Allowances Act 2001
138


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.
(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
5
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.
360Z3
Provisions applying on termination of lease
(1)
This section applies for the purposes of this Part if a lease is
10
terminated.
(2)
If, with the consent of the lessor, the lessee of the qualifying building
remains in possession of the qualifying building after the
termination without a new lease being granted to him, the lease is
treated as continuing so long as the lessee remains in possession.
15
(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.
(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
20
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
(b)
in connection with the transaction that lessee pays a sum to
the person who was the lessee under the first lease,
25

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.
360Z4
Meaning of “lease” etc.
(1)
In this Part “lease” includes—
30
(a)
an agreement for a lease if the term to be covered by the lease
has begun, and
(b)
any tenancy,

but does not include a mortgage (and “lessee”, “lessor” and
“leasehold interest” are to be read accordingly).
35
(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
(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
40
the interest of the landlord in the property subject to the
leasehold interest or lease.”

Finance (No. 2) Bill
Schedule 6 — Capital allowances: renovation of business premises in disadvantaged areas
Part 2 — Consequential amendments
139

Part 2
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)”.
5
3
In section 2(3) of CAA 2001 (provisions about giving effect to allowances and
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)
10
insert—
   “(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
15
allowances under Parts 2 to 4 and 5), and in the section heading and the
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
“and” at the end of paragraph (b) insert—
20
“(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,”.
8
In section 570(1) of CAA 2001 (elections under section 569 of that Act:
25
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
“3A,”.
30
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”

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

35

“lease and related expressions (in
section 360Z4”

Part 3A)

“proceeds from a balancing event
section 360O”

(in Part 3A)

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

40

Finance (No. 2) Bill
Schedule 7 — Tonnage tax
Part 1 — Amendments of Schedule 22 to FA 2000
140

“qualifying business premises (in
section 360D”

Part 3A)

“qualifying expenditure (in Part
section 360B”

3A)

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

5

“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”.
Schedule 7
10
Section 93

Tonnage tax
Part 1
Amendments of Schedule 22 to FA 2000
Introduction
1
Schedule 22 to FA 2000 shall be amended as follows.
15
Period for which election is in force
2     (1)
Paragraph 13 is amended as follows.
      (2)
After sub-paragraph (2) insert—
   “(2A)
A tonnage tax election ceases to be in force—
(a)
in the case of a company election, if a withdrawal notice in
20
respect of the company takes effect under paragraph 15A;
(b)
in the case of a group election, if a withdrawal notice in
respect of the group takes effect under that paragraph.”.
Withdrawal notices
3
After paragraph 15 (and before Part 3) insert—
25
“Withdrawal notices
15A   (1)
A withdrawal notice (see paragraph 13(2A)) may be given—
(a)
in respect of a single company, or
(b)
in respect of a group,

but only if the following conditions are met.
30
      (2)
Condition 1 is that the notice is given during the period—
(a)
beginning with the day on which the Finance Act 2005 is
passed, and
(b)
ending with 31st March 2006.

Finance (No. 2) Bill
Schedule 7 — Tonnage tax
Part 1 — Amendments of Schedule 22 to FA 2000
141

      (3)
Condition 2 is that, for the whole of the period of three years
ending with the day on which the Finance Act 2005 is passed, a
tonnage tax election or a renewal election has been in force in
respect of the company or group in respect of which the
withdrawal notice is to be given.
5
      (4)
A withdrawal notice must be given to the Inland Revenue—
(a)
in the case of a withdrawal notice in respect of a single
company, by that company;
(b)
in the case of a withdrawal notice in respect of a group,
jointly by all the qualifying companies in the group.
10
      (5)
A withdrawal notice given in accordance with this paragraph
takes effect at the end of the accounting period that precedes the
first accounting period of the company to begin after 1st July 2005.
      (6)
In the case of a withdrawal notice given in respect of a group, sub-
paragraph (5) has effect in relation to each qualifying company in
15
the group by reference to that company’s accounting periods.
Power to provide further opportunities for withdrawal
15B   (1)
The Treasury may by order provide for further periods during
which withdrawal notices under paragraph 15A may be given.
      (2)
Any such order may provide for that paragraph to apply, with
20
such consequential adaptations as appear to the Treasury to be
appropriate, in relation to any such further period as it applies in
relation to the period specified in sub-paragraph (2) of that
paragraph.
      (3)
The consequential adaptations that may be made include
25
adaptations of the reference in sub-paragraph (3) of that
paragraph to the period of three years ending with the day on
which the Finance Act 2005 is passed.”.
Qualifying ships
4     (1)
Paragraph 19 is amended as follows.
30
      (2)
In sub-paragraph (1) (meaning of “qualifying ship”)—
(a)
in paragraph (a), after “carriage” insert “by sea”;
(b)
in paragraph (b), after “carriage” insert “by sea”;
(c)
in paragraph (c), after “assistance” insert “carried out at sea”;
(d)
in paragraph (d), after “transport” insert “by sea”.
35
      (3)
In sub-paragraph (3) (other provisions to which sub-paragraph (1) is
subject)—
(a)
after “subject to” insert—
“(a)”;
(b)
at the end insert—
40
“(b)
paragraph 20A (qualifying dredgers and tugs);
(c)
paragraphs 22A to 22F (flagging).”.

Finance (No. 2) Bill
Schedule 7 — Tonnage tax
Part 1 — Amendments of Schedule 22 to FA 2000
142

      (4)
After sub-paragraph (4) insert—
    “(5)
For the purposes of sub-paragraph (1) “sea” does not include—
(a)
a port or harbour;
(b)
an estuary, a tidal or other river or an inland waterway.”.
Vessels excluded from being qualifying ships
5
5     (1)
Paragraph 20 is amended as follows.
      (2)
In sub-paragraph (1) (list of excluded vessels) for paragraph (f) (dredgers)
substitute—
“(f)
dredgers other than qualifying dredgers.”.
      (3)
After sub-paragraph (6) insert—
10
    “(7)
In this Schedule “qualifying dredger” means a dredger which—
(a)
is self-propelled, and
(b)
is constructed or adapted for the carriage of cargo;

(but see further paragraph 20A).”.
Qualifying dredgers and tugs
15
6
After paragraph 20 insert—
“Qualifying dredgers and tugs
20A   (1)
This paragraph applies where a company operates a ship in an
accounting period and the ship—
(a)
is a qualifying dredger or a tug, and
20
(b)
would, apart from this paragraph, be a qualifying ship.
      (2)
The ship shall not be regarded as a qualifying ship operated by the
company in that accounting period unless it is used for one or
more of the activities mentioned in paragraph 19(1)(a) to (d) for
more than 50% of its operational time.
25
      (3)
In this paragraph “operational time”, in relation to a ship operated
by a company in an accounting period, means the time during that
accounting period during which the ship is—
(a)
operated by the company, and
(b)
used for any activity.
30
      (4)
For the purposes of sub-paragraph (2) assisting a self-propelled
vessel into or out of a port or harbour is not to be regarded as use
for an activity mentioned in paragraph 19(1)(c).
      (5)
For the purposes of sub-paragraph (3) any waiting time spent by a
tug for the purposes of a particular activity is to be treated as time
35
during which the tug is used for that activity.”.
Effect of change of use
7     (1)
Paragraph 22 is amended as follows.