Commentary on Sections Glossary History
87.Annual allowances for plant and machinery used in a trade were introduced in 1878. In 1907 a rule was added to prevent the total relief given in respect of an asset from exceeding its cost.
88.In 1945 the first allowances at rates in excess of normal depreciation were introduced to encourage investment.
89.Since 1971, the legislation has referred to accelerated allowances for the period in which expenditure is incurred as “first-year allowances”.
90.FA 1984 phased out first-year allowances as part of a wide-ranging reform of business taxation. First-year allowances at 40% were re-introduced for one year in 1992-93. In 1997 they were re-introduced for one year at 50% for spending by small and medium-sized businesses only. This was extended, at 40%, for 1998-99 and 1999-2000. In FA 2000 the allowances were made indefinite.
91.First-year allowances have also been introduced, on a temporary basis, for expenditure by small and medium-sized enterprises on plant and machinery for use in Northern Ireland and by small enterprises on information and communication technology equipment.
92.Balancing allowances and balancing charges were also introduced in 1945 to bring the total allowances given on an asset into line with the total depreciation over the period the plant or machinery is owned. This is a principle running through Part II of CAA 1990 – and hence this Part.
93.The calculation of writing-down allowances and balancing adjustments for plant and machinery changed fundamentally in 1971 with the introduction of a statutory scheme of pooling. Expenditure on plant or machinery (less any first-year allowances made) is pooled. Writing-down allowances are then given at a single annual rate on the total of this “qualifying expenditure” in the pool. Pooling simplifies calculations and records. It also removes the need for lots of small balancing adjustments when individual items of plant or machinery are sold, scrapped or otherwise disposed of.
94.In 1971 all expenditure was allocated to the main pool apart from expenditure on cars above the cost threshold, plant or machinery provided or used partly for a trade and partly for other purposes and plant or machinery subject to a wear and tear subsidy. These exceptions kept separate expenditure on a single item of plant or machinery. More such “single asset pools” were added in later years. So too were “class pools” for all expenditure of a given type. The pools added were:
	class pool for leased assets and cars below the cost threshold in FA 1980 (abolished by FA 2000);
	class pool for overseas leasing in FA 1982 (which also modified the class pool introduced in 1980);
	single asset pools for ships in FA 1985;
	single asset pools for short-life assets in FA 1985; and
	class pool for long-life assets in FA 1997.
95.Originally allowances were given only for plant and machinery used in trades. In 1945 the legislation provided also for professions, vocations, employments and offices to be treated like trades with some modifications; and in some circumstances for plant and machinery allowances for lessors. Over the years allowances were extended to other businesses by treating them like trades too – again subject to modifications and conditions.
96.What counts as plant and machinery has also evolved over the years – partly because of judicial decisions and partly by legislation.