Finance Bill

House of Commons

Session 2007 - 08
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Finance Bill

Finance Bill
Schedule 24 — Annual investment allowance
Part 1 — Amendments of CAA 2001
296

51N
Special provision for long chargeable periods: supplementary
(1)
This section applies where—
(a)
section 51H applies in relation to two or more qualifying
activities controlled by a person (“P”) in a tax year, and
(b)
the relevant chargeable period for more than one of those
5
qualifying activities is longer than a year.
(2)
Section 51M applies in relation to each of the qualifying activities
mentioned in subsection (1)(b) and the tax year mentioned in
subsection (1)(a), as it applies in relation to A1 and the tax year
mentioned in subsection (1)(a) of that section.
10
(3)
But where two or more of the qualifying activities mentioned in
subsection (1)(b) were related in a previous tax year, section 51M
applies with the following modifications.
(4)
The amount of any relevant unused allowance for that tax year is to
be calculated under section 51M(4) to (7) (without regard to section
15
51M(8)).
(5)
For that purpose section 51M(6) applies as if the reference to A1 were
a reference to any of the qualifying activities mentioned in
subsection (1)(b).
(6)
The amount of the relevant unused allowance may be allocated
20
between those activities, but this is subject to subsection (7).
(7)
The amount of the relevant unused allowance allocated to any one of
those activities may not exceed the amount given by the formula in
section 51M(8).”
4
After section 52 insert—
25
“Prevention of double relief
52A
Prevention of double relief
A person may not claim an annual investment allowance and a first-
year allowance in respect of the same expenditure.”
5
In section 58 (allocation of qualifying expenditure to pools), after subsection
30
(4) insert—
“(4A)
If an annual investment allowance is made to a person for a
chargeable period—
(a)
the AIA qualifying expenditure in respect of which the
allowance is made must be allocated to the appropriate pool
35
(or pools) in that chargeable period, and
(b)
the available qualifying expenditure in a pool to which the
expenditure (or some of it) is allocated is reduced by the
amount of that expenditure.”
6     (1)
Section 205 (reduction of first-year allowances) is amended as follows.
40
      (2)
In subsection (1), after “any” insert “annual investment allowance or”.
      (3)
In the heading, after “of” insert “annual investment allowance and”.
7     (1)
Section 210 (reduction of first-year allowances) is amended as follows.

Finance Bill
Schedule 24 — Annual investment allowance
Part 1 — Amendments of CAA 2001
297

      (2)
In subsection (1), after “amount of any” insert “annual investment allowance
or”.
      (3)
In the heading, after “of” insert “annual investment allowance and”.
8     (1)
Section 217 (restrictions on allowances) is amended as follows.
      (2)
In subsection (1), for “a first-year allowance is not” substitute “no annual
5
investment allowance or first-year allowance is”.
      (3)
In subsection (2), after “Any” insert “annual investment allowance or”.
      (4)
In the heading, after “No” insert “annual investment allowance or”.
9
After section 218 insert—
“218A
Further restriction on annual investment allowance
10
(1)
This section applies where an arrangement is entered into wholly or
mainly for a disqualifying purpose.
(2)
Arrangements are entered into for a disqualifying purpose if their
main purpose, or one of their main purposes, is to enable a person to
obtain an annual investment allowance to which the person would
15
not otherwise be entitled.
(3)
The annual investment allowance mentioned in subsection (2) is not
to be made.
(4)
Any annual investment allowance which is prohibited by subsection
(3), but which has already been made, is to be withdrawn.”
20
10    (1)
Section 236 (additional VAT liability generates first-year allowance) is
amended as follows.
      (2)
After subsection (3) insert—
“(3A)
Subsection (3B) applies if—
(a)
the original expenditure was AIA qualifying expenditure,
25
and
(b)
the additional VAT liability is incurred at a time when the
plant or machinery is provided for the purposes of the
qualifying activity.
(3B)
The additional VAT liability is to be regarded for the purposes of this
30
Part as AIA qualifying expenditure incurred on the same plant or
machinery as the original expenditure in the chargeable period in
which the liability accrues.
(3C)
Section 51A(7) applies to AIA qualifying expenditure constituted by
the additional VAT liability as it applies to other AIA qualifying
35
expenditure.”
      (3)
In the heading, after “allowance” insert “or annual investment allowance”.
11
In section 237(1) (exceptions to section 236), after “liability is not” insert “AIA
qualifying expenditure or”.
12    (1)
Section 241 (no first-year allowance in respect of additional VAT liability) is
40
amended as follows.

Finance Bill
Schedule 24 — Annual investment allowance
Part 2 — Amendments of other enactments
298

      (2)
In subsection (1)(b), before “a first-year” insert “an annual investment
allowance or”.
      (3)
In subsection (2), for “A first-year allowance is not” substitute “No annual
investment allowance or first-year allowance is”.
      (4)
In subsection (3), after “Any” insert “annual investment allowance or”.
5
      (5)
In the heading, after “No” insert “annual investment allowance or”.
13
In section 263(3) (qualifying activities carried on in partnership), after “Any”
insert “annual investment allowance,”.
14
In section 265(4) (successions: general), after “to” insert “an annual
investment allowance or”.
10
15
In Part 2 of Schedule 1 (index of defined expressions), insert at the
appropriate place—

“AIA qualifying expenditure
section 38A”

Part 2
Amendments of other enactments
15
ICTA
16
ICTA is amended as follows.
17
In section 395(1)(c) (leasing contracts and company reconstructions), after
“for which” insert “an annual investment allowance or”.
18
In paragraph 1(6)(b)(i) of Schedule 18 (group relief), before “a first-year”
20
insert “an annual investment allowance or”.
FA 2000
19    (1)
Schedule 22 to FA 2000 (tonnage tax) is amended as follows.
      (2)
In paragraph 87(1)(a), for “a first-year allowance shall not” substitute “no
annual investment allowance or first-year allowance is to be”.
25
      (3)
In paragraph 94(2), after “any” insert “annual investment allowance or”.
ITA 2007
20
ITA 2007 is amended as follows.
21
In section 76 (first-year allowances)—
(a)
after “from” insert “an annual investment allowance or”, and
30
(b)
in the heading, after “allowances” insert “and annual investment
allowances”.
22
In section 78 (arrangements to reduce tax liabilities)—
(a)
in subsection (1)(a), after “the” insert “annual investment allowance
or”, and
35

Finance Bill
Schedule 25 — First-year tax credits
Part 1 — Amendments of CAA 2001
299

(b)
in the heading, after “allowances” insert “and annual investment
allowances”.
Part 3
Commencement
23    (1)
This Schedule has effect in relation to expenditure incurred on or after the
5
relevant date.
      (2)
In relation to a chargeable period which—
(a)
begins before the relevant date, and
(b)
ends on or after the relevant date,

the maximum allowance under section 51A of CAA 2001 is to be calculated
10
as if the period beginning with the relevant date and ending with the end of
the chargeable period were the chargeable period.
      (3)
The relevant date is—
(a)
for corporation tax purposes, 1 April 2008, and
(b)
for income tax purposes, 6 April 2008.
15
Schedule 25
Section 76

First-year tax credits
Part 1
Amendments of CAA 2001
1
CAA 2001 is amended as follows.
20
2
In section 2(3) (general means of giving effect to capital allowances), for
“262” substitute “262A”.
3     (1)
Section 3 (claims for capital allowances) is amended as follows.
      (2)
In subsection (1), after “Act” insert “, and no first-year tax credit is to be paid
under Schedule A1,”.
25
      (3)
After subsection (2A) insert—
“(2B)
Any claim for a first-year tax credit under Schedule A1 must be
separately identified as such in the return.”
4
After section 262 insert—
“First-year tax credits
30
262A
First-year tax credits
Schedule A1 contains provision about the payment of first-year tax
credits to companies in connection with certain first-year qualifying
expenditure.”

Finance Bill
Schedule 25 — First-year tax credits
Part 1 — Amendments of CAA 2001
300

5
Before Schedule 1 insert—
“Schedule A1
Section 262A

       First-year tax credits
Part 1
                      Entitlement to first-year tax credits
5
Entitlement to first-year tax credits
1     (1)
A company may claim a first-year tax credit for a chargeable
period in which it has a surrenderable loss, unless it is an excluded
company in relation to that chargeable period.
      (2)
A company has a surrenderable loss in a chargeable period if in
10
that chargeable period—
(a)
a first-year allowance is made to the company in respect of
relevant first-year expenditure (see paragraph 3) incurred
for the purposes of a qualifying activity the profits of
which are chargeable to corporation tax, and
15
(b)
the company incurs a loss in carrying on that qualifying
activity (see paragraphs 4 to 9).
      (3)
The amount of the surrenderable loss is equal to—
(a)
so much of the loss incurred in carrying on the qualifying
activity as is unrelieved (see paragraphs 10 to 16), or
20
(b)
if less, the amount of the first-year allowance made in
respect of the relevant first-year expenditure in the
chargeable period in question.
      (4)
A company is an excluded company in relation to a chargeable
period if at any time during that period it is entitled to make a
25
claim under—
(a)
section 488 of ICTA (rent etc of co-operative housing
associations disregarded for tax purposes),
(b)
section 489 of that Act (rent etc of self-build societies
disregarded for tax purposes),
30
(c)
section 505 of that Act (exemption from tax for charitable
companies), or
(d)
section 508 of that Act (exemption from tax for scientific
research organisations).
Amount of first-year tax credit
35
2     (1)
The amount of the first-year tax credit to which a company is
entitled for a chargeable period in which it has a surrenderable
loss is an amount equal to—
(a)
19% of the amount of the surrenderable loss for the
chargeable period, or
40
(b)
if the amount mentioned in paragraph (a) exceeds the
upper limit, the upper limit.
      (2)
The upper limit is the greater of—

Finance Bill
Schedule 25 — First-year tax credits
Part 1 — Amendments of CAA 2001
301

(a)
the total amount of the company’s PAYE and NICs
liabilities for payment periods ending in the chargeable
period (see paragraph 17), and
(b)
£250,000.
      (3)
A company which is entitled to an amount of first-year tax credit
5
may claim the whole amount or part only of the amount.
      (4)
The Treasury may by order substitute for the percentage for the
time being specified in sub-paragraph (1)(a) such other percentage
as it thinks fit.
      (5)
An order under sub-paragraph (4) may make such incidental,
10
supplemental, consequential and transitional provision as the
Treasury thinks fit.
Meaning of “relevant first-year expenditure”
3     (1)
In this Schedule “relevant first-year expenditure” means
expenditure which—
15
(a)
is first-year qualifying expenditure by virtue of section
45A (energy-saving plant or machinery) or section 45H
(environmentally beneficial plant or machinery), and
(b)
is incurred in the period beginning with 1 April 2008 and
ending with 31 March 2013,
20

but does not include expenditure which is treated as first-year
qualifying expenditure within paragraph (a) by virtue of section
236 (additional VAT liability treated as expenditure).
      (2)
In determining whether expenditure is relevant first-year
expenditure, any effect of section 12 on the time at which it is to be
25
treated as incurred is to be disregarded.
      (3)
The Treasury may by order substitute, for the date for the time
being specified in sub-paragraph (1)(b) as the date with which the
period ends, such later date as it thinks fit.
      (4)
An order under sub-paragraph (3) may make such incidental,
30
supplemental, consequential and transitional provision as the
Treasury thinks fit.
Incurring a loss in carrying on a qualifying activity
4
Paragraphs 5 to 9 apply for the interpretation of paragraph 1(2)(b).
5     (1)
This paragraph applies where the qualifying activity is a Schedule
35
A business other than a furnished holiday lettings business and
paragraph 7 does not apply.
      (2)
References in this Schedule to a loss incurred in carrying on the
qualifying activity are to a loss incurred in carrying on that part of
the business (if any) to which section 392A of ICTA (Schedule A
40
losses) applies.
6     (1)
This paragraph applies where the qualifying activity is an
overseas property business and paragraph 7 does not apply.

Finance Bill
Schedule 25 — First-year tax credits
Part 1 — Amendments of CAA 2001
302

      (2)
References in this Schedule to a loss incurred in carrying on the
qualifying activity are to a loss incurred in carrying on that part of
the business (if any) to which section 392B of ICTA (losses from
overseas property business) applies.
7     (1)
This paragraph applies where—
5
(a)
the qualifying activity is a Schedule A business or an
overseas property business, and
(b)
the company is an insurance company.
      (2)
References in this Schedule to a loss incurred in carrying on the
qualifying activity are to a loss which is treated under section
10
432AB(3) of ICTA, for the purposes of section 76 of that Act, as
expenses payable which fall to be brought into account at Step 3 of
subsection (7) of that section.
      (3)
Where the insurance company is treated under section 432AA of
that Act as carrying on more than one Schedule A business or
15
overseas property business, references in this Schedule to a loss
incurred in carrying on the qualifying activity are to be construed
in accordance with section 432AB(4) of that Act (aggregation of
losses).
8     (1)
This paragraph applies where the qualifying activity is managing
20
the investments of a company with investment business.
      (2)
The company incurs a loss in carrying on that activity in a
chargeable period if in that chargeable period—
(a)
the sum of the expenses and charges mentioned in section
75(8)(a) and (b) of ICTA, exceeds
25
(b)
the amount of the profits from which those expenses and
charges are deductible,

and the amount of the loss is the amount of the excess.
9     (1)
This paragraph applies where the qualifying activity is life
assurance business and the profits of that business are charged to
30
tax under the I minus E basis.
      (2)
The company incurs a loss in a chargeable period if in that
chargeable period an amount falls to be carried forward to a
succeeding chargeable period under section 76(12) of ICTA
(carrying forward unrelieved expenses).
35
      (3)
The amount of the loss is the amount which falls to be so carried
forward.
Unrelieved loss
10
Paragraphs 11 to 16 apply for the interpretation of paragraph
1(3)(a).
40
11    (1)
This paragraph applies where the qualifying activity is a trade or
a furnished holiday lettings business and paragraph 14 or 16 does
not apply.
      (2)
The amount of the loss that is unrelieved is the amount of the loss,
reduced by the amount of—
45