Finance Bill

House of Commons

Session 2007 - 08
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Finance Bill

Finance Bill
Schedule 25 — First-year tax credits
Part 1 — Amendments of CAA 2001
310

plant and machinery which the company has previously
disposed of, and
ARL is the amount of the restored loss (or the aggregate of the
amounts of the restored loss) on any previous application
of this paragraph.
5
Clawback of first-year tax credits: administrative provision
27    (1)
Where paragraph 24 applies, all such assessments and
adjustments of assessments are to be made as are necessary.
      (2)
If a company which has made a tax return becomes aware that, as
a result of that paragraph applying after the return was made, the
10
return has become incorrect, it must give notice to HMRC
specifying how the return needs to be amended.
      (3)
The notice must be given within 3 months beginning with the day
on which the company became aware that anything in the tax
return had become incorrect because of paragraph 24.
15
Part 4
Supplementary
Artificially inflated claims
28    (1)
To the extent that a transaction is attributable to arrangements
entered into wholly or mainly for a disqualifying purpose, it shall
20
be disregarded in determining for a chargeable period the amount
of any first-year tax credit to which a company is entitled under
this Schedule.
      (2)
Arrangements are entered into wholly or mainly for a
disqualifying purpose if their main object, or one of their main
25
objects, is to enable a company to obtain a first-year tax credit—
(a)
to which it would not otherwise be entitled, or
(b)
of a greater amount than that to which it would otherwise
be entitled.
      (3)
“Arrangements” includes any scheme, agreement or
30
understanding, whether or not legally enforceable.
Interpretation
29
In this Schedule—
“HMRC” means the Commissioners for Her Majesty’s
Revenue and Customs;
35
“national insurance contributions” means contributions
under Part 1 of the Social Security Contributions and
Benefits Act 1992 or Part 1 of the Social Security
Contributions and Benefits (Northern Ireland) Act 1992.”

Finance Bill
Schedule 25 — First-year tax credits
Part 2 — Amendments of other enactments
311

6
In Part 1 of Schedule 1, insert at the appropriate places—

“FA 2000
The Finance Act 2000 (c. 17)”

“FA 2001
The Finance Act 2001 (c. 9)”

“FA 2002
The Finance Act 2002 (c. 23)”.

Part 2
5
Amendments of other enactments
ICTA
7     (1)
Section 826 of ICTA (interest on tax overpaid) is amended as follows.
      (2)
In subsection (1), after paragraph (f) insert “, or
(g)
a payment of first-year tax credit falls to be made to a
10
company under Schedule A1 to the Capital Allowances Act.”
      (3)
After subsection (3C) insert—
“(3D)
In relation to a payment of first-year tax credit falling within
subsection (1)(g) above the material date is whichever is the later
of—
15
(a)
the filing date for the company’s company tax return for the
accounting period for which the tax credit is claimed, and
(b)
the date on which the company tax return or amended
company tax return containing the claim for payment of the
tax credit is delivered to the Commissioners for Her
20
Majesty’s Revenue and Customs.

For this purpose “the filing date”, in relation to a company tax return,
has the same meaning as in Schedule 18 to the Finance Act 1998.”
      (4)
In subsection (8A)(b)(ii), after “film tax credit” insert “or first-year tax credit
under Schedule A1 to the Capital Allowances Act”.
25
      (5)
In subsection (8BA), after “film tax credit” (in both places) insert “or first-
year tax credit under Schedule A1 to the Capital Allowances Act”.
FA 1998
8     (1)
Schedule 18 to FA 1998 (company tax returns, assessments etc.) is amended
as follows.
30
      (2)
In paragraph 10(2)—
(a)
after “capital allowances” insert “, first-year tax credits”, and
(b)
after “79” insert “, 83ZA”.
      (3)
In paragraph 52, after sub-paragraph (2) insert—
   “(2A)
The provisions of paragraphs 41 and 45 to 48 relating to discovery
35
assessments apply to an amount paid to a company by way of
first-year tax credit under Schedule A1 to the Capital Allowances
Act as if it were unpaid tax, but only to the extent that the
company was not, or is no longer, entitled to it.”

Finance Bill
Schedule 25 — First-year tax credits
Part 3 — Commencement
312

      (4)
In paragraph 52(5), after paragraph (ae) insert—
“(af)
an amount of first-year tax credit under Schedule A1 to the
Capital Allowances Act paid to a company for an
accounting period,”.
      (5)
After paragraph 83 insert—
5
“83ZA (1)
Subject as follows, this Part of this Schedule applies to claims for
a first-year tax credit under Schedule A1 to the Capital Allowances
Act as it applies to claims for allowances under that Act.
      (2)
A company tax return in which a claim to a first-year tax credit is
made must specify—
10
(a)
the plant or machinery to which the relevant first-year
expenditure relates,
(b)
the amount of the relevant first-year expenditure incurred
in respect of that plant or machinery, and
(c)
the date on which that expenditure was incurred.
15
      (3)
Where an order under section 45B or 45I of that Act (first-year
allowance available only if relevant certificate in force) applies in
relation to the plant or machinery, the company tax return must be
accompanied by the relevant certificate.
      (4)
The company is liable to a penalty where it—
20
(a)
fraudulently or negligently makes a claim for a first-year
tax credit which is incorrect, or
(b)
discovers that a claim for a first-year tax credit made by it
(neither fraudulently or negligently) is incorrect, and does
not remedy the error without unreasonable delay.
25
      (5)
The penalty is an amount not exceeding the excess first-year tax
credit claimed, that is the difference between—
(a)
the amount of the first-year tax credit to which the
company is entitled for the accounting period to which the
claim relates, and
30
(b)
the amount of the first-year tax credit claimed by the
company for that period.”
Part 3
Commencement
9
The amendments made by this Schedule have effect in relation to
35
expenditure incurred on or after 1 April 2008.

Finance Bill
Schedule 26 — Special rate expenditure and the special rate pool
Part 1 — Amendments to CAA 2001
313

Schedule 26
Section 79

Special rate expenditure and the special rate pool
Part 1
Amendments to CAA 2001
Introductory
5
1
CAA 2001 is amended in accordance with this Part of this Schedule.
Special rate expenditure and the special rate pool
2
After Chapter 10 insert—
“Chapter 10A
Special rate expenditure
10
Special rate expenditure
104A
Special rate expenditure
(1)
“Special rate expenditure” means—
(a)
expenditure incurred on or after the relevant date to which
section 28 (thermal insulation) applies,
15
(b)
expenditure incurred on or after that date to which section
33A (integral features) applies,
(c)
long-life asset expenditure (within the meaning of Chapter
10) incurred on or after that date, and
(d)
long-life asset expenditure (within the meaning of that
20
Chapter) incurred before that date but allocated to a pool in a
chargeable period beginning on or after that date.
(2)
The relevant date is—
(a)
for corporation tax purposes, 1 April 2008, and
(b)
for income tax purposes, 6 April 2008.
25
104B
Application of Chapter to part of expenditure
(1)
If part only of the capital expenditure on plant and machinery is
special rate expenditure—
(a)
the part which is such expenditure, and
(b)
the part which is not,
30

are to be treated for the purposes of this Act as expenditure on
separate items of plant or machinery.
(2)
For the purposes of subsection (1), all such apportionments are to be
made as are just and reasonable.

Finance Bill
Schedule 26 — Special rate expenditure and the special rate pool
Part 1 — Amendments to CAA 2001
314

Rules applying to special rate expenditure
104C
Special rate pool
(1)
Special rate expenditure to which this section applies, if allocated to
a pool, must be allocated to a class pool (“the special rate pool”).
(2)
This section applies to special rate expenditure if—
5
(a)
it is incurred wholly and exclusively for the purposes of a
qualifying activity, and
(b)
it is not expenditure which is required to be allocated to a
single asset pool.
104D
Writing-down allowances at 10%
10
(1)
The amount of the writing-down allowance to which a person is
entitled for a chargeable period in respect of expenditure which is
special rate expenditure is 10% of the amount by which AQE exceeds
TDR (see Chapter 5).
(2)
Subsection (1) applies even if the special rate expenditure is in a
15
single asset pool.
(3)
In the case of expenditure in the special rate pool, this section is
subject to section 56A (writing-down allowance for small pools).
(4)
Subsections (3) and (4) of section 56 (proportionate increases or
reductions in amount in certain cases) apply for the purposes of
20
subsection (1) of this section as they apply for the purposes of
subsection (1) of that section.
104E
Disposal value of special rate assets
(1)
This section applies if—
(a)
section 104D (writing-down allowances at 10%) has had
25
effect in relation to any special rate expenditure incurred by
a person (“the taxpayer”),
(b)
any disposal event occurs in relation to the item on which the
expenditure was incurred,
(c)
the disposal value to be brought into account by the taxpayer
30
would (but for this section) be less than the notional written-
down value of the item, and
(d)
the disposal event is part of, or occurs as a result of, a scheme
or arrangement the main purpose or one of the main
purposes of which is the obtaining by the taxpayer of a tax
35
advantage under this Part.
(2)
The disposal value that the taxpayer must bring into account is the
notional written-down value of the item.
(3)
The notional written-down value is—

where—
40

QE is the taxpayer’s expenditure on the item that is
qualifying expenditure, and

A is the total of all allowances which could have been made
to the taxpayer in respect of that expenditure if—

Finance Bill
Schedule 26 — Special rate expenditure and the special rate pool
Part 1 — Amendments to CAA 2001
315

(a)
that expenditure had been the only expenditure that
had ever been taken into account in determining the
taxpayer’s available qualifying expenditure,
(b)
where the item is a long-life asset, that expenditure
had not been prevented by the application of a
5
monetary limit from being long-life asset
expenditure, and
(c)
all allowances had been made in full.”
Consequential amendments
3
In section 54(5) (the different kinds of pools), for “section 101 (long life
10
assets);” substitute “section 104C (special rate expenditure);”.
4
In section 56(2) (amount of allowances and charges), for paragraph (a)
substitute—
“(a)
section 104D (special rate expenditure: 10%), and”.
5
In section 65(1) (final chargeable period), for paragraph (b) substitute—
15
“(b)
a special rate pool,”.
6
In section 66 (list of provisions about disposal values), for the entry relating
to section 104 substitute—

“section 104E
special rate expenditure: avoidance cases”.

7
In column 1 of the table in section 84 (cases in which short-life asset
20
treatment is ruled out), for item 4 substitute—
“4
The expenditure is special rate expenditure (see Chapter 10A).”
8
Omit section 92 (application of Chapter 10 to part of expenditure).
9
For section 101 (long-life asset pool) substitute—
“101
Allocation of long-life asset expenditure to pool
25
Chapter 10A (special rate expenditure and the special rate pool)
provides for long-life asset expenditure to be allocated to the special
rate pool.”
10
For section 102 (6% writing-down allowance in respect of long-life asset
expenditure) substitute—
30
“102
Writing-down allowance in respect of long-life asset expenditure
Chapter 10A (special rate expenditure and the special rate pool)
provides for the writing-down allowance to which a person is
entitled in respect of long-life asset expenditure.”
11
Omit section 104 (disposal value of long-life assets).
35
12
In section 266(7) (certain provisions disapplied where election made under
section 266)—
(a)
for “104” substitute “104E”, and
(b)
for “of long-life assets” substitute “in connection with special rate
expenditure”.
40

Finance Bill
Schedule 26 — Special rate expenditure and the special rate pool
Part 2 — Commencement etc
316

13
In Part 2 of Schedule 1 (index of defined expressions), insert at the
appropriate place—

“special rate expenditure
section 104A”

(in Part 2)

Part 2
5
Commencement etc
Commencement
14    (1)
This Schedule has effect in relation to—
(a)
expenditure incurred on or after the relevant date, and
(b)
long-life asset expenditure (within the meaning of Chapter 10 of
10
CAA 2001) incurred before the relevant date but allocated to a pool
in a chargeable period beginning on or after that date.
      (2)
Sub-paragraph (1) is subject to—
(a)
section 80 (which provides that certain other long-life asset
expenditure is to be treated as special rate expenditure for the
15
purposes of CAA 2001), and
(b)
paragraphs 15 to 17.
      (3)
The relevant date is—
(a)
for corporation tax purposes, 1 April 2008, and
(b)
for income tax purposes, 6 April 2008.
20
Sale between connected persons
15    (1)
This paragraph applies where, on or after the relevant date—
(a)
there is a sale of a pre-commencement integral feature,
(b)
the buyer and seller are connected persons (within the meaning of
section 575 of CAA 2001), and
25
(c)
the buyer’s expenditure on the integral feature would (apart from
this paragraph) be special rate expenditure.
      (2)
An integral feature is a pre-commencement integral feature if the seller—
(a)
incurred expenditure on it before the relevant date, or
(b)
incurred expenditure on it on or after that date which was not
30
qualifying expenditure because of a previous application of this
paragraph.
      (3)
The buyer’s expenditure on the integral feature is not qualifying
expenditure unless—
(a)
the original expenditure was qualifying expenditure, or
35
(b)
the buyer’s expenditure would have been qualifying expenditure,
had it been incurred at the time the original expenditure was
incurred.
      (4)
The “original expenditure”—