Finance Bill

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Session 2007 - 08
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Finance Bill

Finance Bill (Volume II)
Schedule 24 — Annual investment allowance
Part 1 — Amendments of CAA 2001
319

(7)
In this section “parent undertaking” has the same meaning as in
section 1162 of the Companies Act 2006.
51E
Fourth restriction: other companies under common control
(1)
This section applies in relation to two or more companies which in a
financial year are—
(a)
controlled by the same person (see section 51F), and
(b)
related to one another (see section 51G),

and in relation to which to neither section 51C nor section 51D
applies.
(2)
The companies are entitled to a single annual investment allowance
between them in respect of the relevant AIA qualifying expenditure.
(3)
The companies may allocate the annual investment allowance to the
relevant AIA qualifying expenditure as they think fit.
(4)
The relevant AIA qualifying expenditure is the AIA qualifying
expenditure incurred by the companies in chargeable periods ending
in the financial year mentioned in subsection (1).
51F
Companies and groups: meaning of “control”
(1)
A company is controlled by a person in a financial year if it is
controlled by that person at the end of its chargeable period ending
in that financial year.
(2)
A group of companies is controlled by a person in a financial year if
the company which is the parent undertaking is controlled by that
person at the end of its chargeable period ending in that financial
year.
(3)
Section 574(2) defines “control” in relation to a company which is a
body corporate.
(4)
In relation to a company (“C”) which is not a body corporate, control
means the power of a person (“P”) to secure—
(a)
by means of the holding of shares or the possession of voting
power in relation to C or another body, or
(b)
as a result of any powers conferred by the constitution of C or
another body,

that the affairs of C are conducted in accordance with P’s wishes.
(5)
In subsection (4) “shares” has the meaning given by section 1161(2)
of the Companies Act 2006.
51G
Companies and groups: meaning of “related”
(1)
A company (“C1”) is related to another company (“C2”) in a financial
year if one or both of—
(a)
the shared premises condition, and
(b)
the similar activities condition,

are met in relation to the companies in that financial year.
(2)
Where C1 is related to C2 in a financial year, C1 is also related to any
other company to which C2 is related in that financial year.

Finance Bill (Volume II)
Schedule 24 — Annual investment allowance
Part 1 — Amendments of CAA 2001
320

(3)
A group of companies (“G1”) is related to another group of
companies (“G2”) in a financial year if in that financial year a
company which is a member of G1 is related to a company which is
a member of G2.
(4)
Where G1 is related to G2 in a financial year, G1 is also related to any
other group of companies to which G2 is related in that financial
year.
(5)
The shared premises condition is met in relation to two companies in
a financial year if, at the end of the relevant chargeable period of one
or both of the companies, the companies carry on qualifying
activities from the same premises.
(6)
The similar activities condition is met in relation to two companies in
a financial year if—
(a)
more than 50% of the turnover of one company for the
relevant chargeable period is derived from qualifying
activities within a particular NACE classification, and
(b)
more than 50% of the turnover of the other company for the
relevant chargeable period is derived from qualifying
activities within that NACE classification.
(7)
In this section—
“NACE classification” means the first level of the common
statistical classification of economic activities in the European
Union established by Regulation (EC) No 1893/2006 of the
European Parliament and the Council of 20 December 2006
(as that Regulation has effect from time to time), and
“relevant chargeable period”, in relation to a company and a
financial year, means the chargeable period of the company
ending in that financial year.
51H
Fifth restriction: qualifying activities under common control
(1)
This section applies in relation to two or more qualifying activities
which, in a tax year—
(a)
are carried on by a qualifying person other than a company,
(b)
are controlled by the same person (see section 51I), and
(c)
are related to one another (see section 51J).
(2)
A qualifying activity is carried on by a qualifying person in a tax year
if it is carried on by the person at the end of the chargeable period for
the activity ending in the tax year.
(3)
Where all the qualifying activities are carried on by one qualifying
person, that person is entitled to a single annual investment
allowance in respect of the relevant AIA qualifying expenditure.
(4)
Where the qualifying activities are carried on by more than one
qualifying person, those persons are entitled to a single annual
investment allowance between them in respect of the relevant AIA
qualifying expenditure.
(5)
The person or persons carrying on the qualifying activities may
allocate the annual investment allowance to the relevant AIA
qualifying expenditure as the person or persons think fit.

Finance Bill (Volume II)
Schedule 24 — Annual investment allowance
Part 1 — Amendments of CAA 2001
321

(6)
The relevant AIA qualifying expenditure is the AIA qualifying
expenditure incurred for the purposes of the qualifying activities in
the chargeable periods for those activities ending in the tax year
mentioned in subsection (1).
51I
Qualifying activities: meaning of control
(1)
A qualifying activity is controlled by a person in a tax year if it is
controlled by the person at the end of the chargeable period for that
activity which ends in that tax year.
(2)
A qualifying activity carried on by an individual is controlled by the
individual who carries it on.
(3)
A qualifying activity carried on by a partnership is controlled by the
person (if any) who controls the partnership.
(4)
Section 574(3) defines “control” in relation to a partnership.
(5)
Where partners who between them control one partnership also
between them control another partnership, the qualifying activities
carried on by the partnerships are to be treated as controlled by the
same person.
51J
Qualifying activity: meaning of “related”
(1)
A qualifying activity (“A1”) is related to another qualifying activity
(“A2”) in a tax year if one or both of—
(a)
the shared premises condition, and
(b)
the similar activities condition,

are met in relation to the activities in the tax year.
(2)
Where A1 is related to A2 in a tax year, A1 is also related to any other
qualifying activity to which A2 is related in that tax year.
(3)
The shared premises condition is met in relation to two qualifying
activities in a tax year if, at the end of the relevant chargeable period
for one or both of the activities, the activities are carried on from the
same premises.
(4)
The similar activities condition is met in relation to two qualifying
activities in a tax year if, at the end of the relevant chargeable period
for one or both of the activities, the activities are within the same
NACE classification.
(5)
In this section—
“NACE classification” has the same meaning as in section 51G,
and
“relevant chargeable period”, in relation to a qualifying activity
and a tax year, means the chargeable period for that activity
ending in that tax year.
51K
Operation of annual investment allowance where restrictions apply
(1)
This section applies where because of section 51B, 51C, 51D, 51E or
51H a person is (or persons between them are) entitled to a single
annual investment allowance in respect of relevant AIA qualifying
expenditure.

Finance Bill (Volume II)
Schedule 24 — Annual investment allowance
Part 1 — Amendments of CAA 2001
322

(2)
If the relevant AIA qualifying expenditure is less than or equal to the
maximum allowance, the person is (or the persons between them
are) entitled to an annual investment allowance in respect of all the
relevant AIA qualifying expenditure.
(3)
If the relevant AIA qualifying expenditure is more than the
maximum allowance, the person is (or the persons between them
are) entitled to an annual investment allowance in respect of so much
of the relevant AIA qualifying expenditure as does not exceed the
maximum allowance.
(4)
The maximum allowance is the amount for the time being specified
in section 51A(5); but this is subject to sections 51M and 51N (which
provide that in certain cases an additional amount of annual
investment allowance may be available).
(5)
The person or persons may claim an annual investment allowance in
respect of all the relevant AIA qualifying expenditure in respect of
which the person is (or the persons between them are) entitled to an
allowance, or in respect of only some of it.
(6)
The amount of the annual investment allowance allocated to relevant
AIA qualifying expenditure incurred in a chargeable period must
not exceed the amount of the annual investment allowance to which
a person would be entitled in respect of that expenditure under
section 51A(5) and (6) if section 51B, 51C, 51D, 51E or 51H did not
apply.
51L
Special provision for short chargeable periods
(1)
This section applies where—
(a)
more than one chargeable period of a company ends in a
financial year, or
(b)
more than one chargeable period for a qualifying activity
ends in a tax year.
(2)
Whether section 51C, 51D or 51E applies in relation to the company,
or section 51H applies in relation to the qualifying activity, is to be
determined in relation to each chargeable period ending in that year
as if it were the only chargeable period ending in that year.
(3)
AIA qualifying expenditure incurred in a chargeable period in
relation to which the section in question does not apply is not
relevant AIA qualifying expenditure for the purposes of that section.
51M
Special provision for long chargeable periods
(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 one of those qualifying
activities (“A1”) is longer than a year.
(2)
An additional amount of annual investment allowance may be
allocated to relevant AIA qualifying expenditure incurred for the
purposes of A1.

Finance Bill (Volume II)
Schedule 24 — Annual investment allowance
Part 1 — Amendments of CAA 2001
323

(3)
That additional amount is the amount, or the aggregate of the
amounts, of any relevant unused allowance for each tax year (a
“previous tax year”)—
(a)
which falls before the tax year mentioned in subsection (1)(a),
and
(b)
in which part of A1’s relevant chargeable period falls.
(4)
The amount of the relevant unused allowance for a previous tax year
is (subject to subsections (7) and(8))—

but where the amount given by that formula is less than nil, the
amount of the relevant unused allowance for the previous tax year is
nil.
(5)
In subsection (4)—
MA is the amount specified in section 51A(5) in relation to the
previous tax year, and
AM is the amount of any annual investment allowance made
under section 51A or 51K in respect of AIA qualifying
expenditure incurred for the purposes of a relevant
qualifying activity in the chargeable period for that activity
ending in the previous tax year.
(6)
“Relevant qualifying activity” means—
(a)
any qualifying activity carried on by a qualifying person
other than a company which was controlled by P in the
previous tax year (see section 51I) and related to A1 in that
tax year (see section 51J), and
(b)
if A1 was controlled by P in the previous tax year (see section
51I), A1.
(7)
Where any part of the amount calculated under subsection (4) has,
on a previous application of this section, been allocated to AIA
qualifying expenditure incurred for the purposes of a qualifying
activity controlled by P in a tax year before that mentioned in
subsection (1)(a), the amount of the relevant unused allowance is
reduced accordingly.
(8)
Where the amount of the relevant unused allowance for a previous
tax year would (apart from this subsection) exceed—

the amount of the relevant unused allowance for that tax year is
limited to the amount given by that formula.
(9)
In subsection (8)—
DCPY is the number of days in A1’s relevant chargeable period
falling in the previous tax year,
DY is the number of days in that tax year, and
MA has the meaning given by subsection (5).
(10)
Nothing in this section prevents section 51K(6) applying in relation
to relevant AIA qualifying expenditure incurred for the purposes of
A1.

Finance Bill (Volume II)
Schedule 24 — Annual investment allowance
Part 1 — Amendments of CAA 2001
324

(11)
In this section references to a relevant chargeable period, in relation
to a qualifying activity, are to the chargeable period for that activity
ending in the tax year mentioned in subsection (1)(a).
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
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.
(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
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
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—
“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
(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
(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.

Finance Bill (Volume II)
Schedule 24 — Annual investment allowance
Part 1 — Amendments of CAA 2001
325

      (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.
      (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
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
(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
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.”
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,
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
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
expenditure.”
      (3)
In the heading, after “allowance” insert “or annual investment allowance”.