Introduction Relevant excess of allowances
25.New section 212J gives the calculation for establishing whether or not C or P has a relevant excess of allowances in relation to the relevant trade and provides that certain plant and machinery is to be excluded from the calculation.
26.Subsection (1) gives the formula that governs the calculation and provides that C or P has a relevant excess of allowances if the RTWDV (relevant tax written down value) is more than the BSV (balance sheet value).
27.Subsection (4) explains when plant and machinery is “excluded plant and machinery”. The subsection excludes two types of assets. The first type is plant and machinery that is owned by C (or P) but is prohibited from qualifying for allowances because the plant and machinery is leased out under a long funding lease and section 34A of CAA prohibits the expenditure from being qualifying expenditure. The second type is plant and machinery that is owned by C (or P) but is prohibited from qualifying for allowances because the plant and machinery is the subject of a hire purchase contract where the person entitled to the benefit of the contract is deemed to be the owner and no other person can be by virtue of section 67 of CAA.
28.New section 212K provides that RTWDV is the “relevant tax written-down value” and explains how it is to be found. In broad terms the section works by totalling two amounts, the first of which is based on the amounts that are actually in the capital allowances pools but adjusted to include expenditure that has yet to be allocated to a pool and ignoring any disposals on the relevant day. The second amount is the amount of any allowances postponed because a notice has been given under section 130 of CAA.
29.Subsection (2) defines “amount 1” in relation to the three types of plant and machinery pools: single asset pools, class pools and the main pool. The subsection looks to the amount of unrelieved expenditure that is available to be carried forward from all pools (that is after the application of section 56 of CAA) from the “old period”.
30.Subsection (3) defines “amount 2” and identifies any first-year or writing-down allowance that has been postponed because a notice has been given under section 130 of CAA, by the person entitled to the first-year or writing-down allowance, in relation to qualifying expenditure incurred on the provision of a ship and not subsequently claimed by the end of the old period. Amount 2 is only included in RTWDV where the relevant day is on or after 9 December 2009.
31.Subsection (4) provides that the amount of unrelieved qualifying expenditure contained in a pool is to be calculated on the basis of three assumptions.
32.Subsection (4)(a) sets out the first assumption which is that any qualifying expenditure that could have been allocated to the pool has been allocated to the pool by the end of the old period. Normally a person can add qualifying expenditure to a pool at any time provided the person still owns the asset at some point in the particular chargeable period in which the person wants to add the qualifying expenditure to a pool. The rule prevents any expenditure being added to any pool after the relevant day as it has already been treated as added on the relevant day.
33.Subsection (4)(b) sets out the second assumption which overrides the normal rule in section 58(5) of CAA and allocates the balance of any first-year qualifying expenditure incurred in the old period to a pool in the old period at the end of the old period.
34.Subsection (4)(c) sets out the third assumption which is that any transaction taking place on the relevant day that has the effect of reducing the amount of unrelieved qualifying expenditure in a pool had not taken place. Where this rule applies new section 212S will also be in point in relation to any transfers of plant and machinery on the relevant day and any person’s ability to claim an allowance in respect of it subsequently.
35.Subsection (5) ensures that where condition C is met, i.e. C ceases to carry on the relevant trade or part of the relevant trade and the relevant trade begins to be carried on in partnership by two or more companies, then for the purposes of calculating the amount of unrelieved qualifying expenditure in any pool and the amount of postponed allowances you look at the position in C as it would have been if there had not been a qualifying change.
36.Subsection (6) prevents circularity by identifying which period is the “old period” for the purposes of the section.
37.Subsection (7) explains that the plant and machinery identified by subsections (2) and (3) is referred to as “the relevant plant and machinery” in new sections 212L to S.
38.New section 212L provides that the term BSV, used in section 212J, is the balance sheet value of “the relevant plant and machinery” and is to be found by adding together specific amounts (if any) which would be shown in respect of it in the “appropriate” balance sheet of C or P.
39.Subsection (2) identifies two amounts to be added together. These are the net book value (or carrying amount) of the relevant plant and machinery and where the relevant plant and machinery is leased to a lessee under one or more finance leases which are not long funding finance leases, the amounts shown in the appropriate balance sheet as the net investment in that lease or those leases.
40.Subsection (3) provides that where the plant and machinery is a fixture in any land and the net book value (or carrying amount) of the land would include an amount in respect of the fixture, then the net book value (or carrying amount) of the fixture is determined on a just and reasonable basis.
41.Subsection (4) provides a similar rule to subsection (3) where plant and machinery is leased under a finance lease along with any land or other assets which are not plant and machinery. The net investment in the lease in respect of the plant and machinery is determined on a just and reasonable basis.
42.Subsections (5) and (6) identify the appropriate balance sheet. The balance sheet has to be drawn up in accordance with generally accepted accounting practice so as to reflect the position at the beginning of the relevant day but adjusted for the disposal of any relevant plant and machinery that takes place on the relevant day.