Revenue Note for Guidance
Where for the purposes of a trade carried on by a trader the trader contributes to capital expenditure incurred by a local authority on the provision of an asset for an approved scheme of effluent control or the supply of water under a written agreement between the trader and the local authority, the contribution qualifies for certain capital allowances for which it would have qualified if it were expenditure incurred directly by the trader on the provision of that asset. The capital allowances which may be given are writing-down allowances in respect of industrial buildings or structures and wear and tear allowances in respect of machinery and plant.
(1) “approved scheme” is defined so as to restrict the scope of the section to schemes of effluent control undertaken by local authorities with the approval of the Minister for the Environment and Local Government.
“local authority” means a county council, the corporation of a county or other borough or an urban district council.
“trade effluent”: in order to come within this definition the matter for treatment must be discharged from trading premises into public sewers.
(2) The section applies where a person contributes a capital sum to a local authority towards expenditure incurred by a local authority on the provision of an asset to be used for the purposes of an approved scheme or the supply of water under a written agreement between the person and the local authority, and the contribution was made by the person for the purposes of a trade carried on or to be carried on by the person. In any such case, the contribution is treated, for the purposes of certain capital allowances, as if it were expended by the contributor on the provision of a similar asset which is to be regarded as in use for the purposes of the person’s trade at all material times. The capital allowances concerned are writing-down allowances (section 272) in respect of industrial buildings or structures and wear and tear allowances (section 284) in respect of machinery or plant.
(2A) Where, by virtue of subsection (2), a person is entitled to wear and tear allowances under section 284, then, in determining the amount of the allowance to be made for any chargeable period or its basis period (defined in section 321), paragraph (aa) or paragraph (ad) of section 284(2) are to apply in a modified manner such that the 20 per cent wear and tear allowance or the 12 per cent wear and tear allowance, as appropriate, will be given in respect of the actual capital contribution made in the chargeable period or basis period concerned. (Paragraph (ad) applies where the expenditure is incurred on or after 4 December 2002.) In other words, the allowances will be given on an “as you pay” basis – it will not be possible for the taxpayer to immediately draw down allowances in respect of the full contribution to be made to the local authority over a period of time.
(3) Where the person’s trade is sold or transferred to another person, any unused industrial buildings writing-down allowances (section 272) and wear and tear allowances (section 284) relating to the contribution will continue to be made after the sale or transfer, but are to be made to the successor (not to the seller or transferor). Where the sale or transfer is of part only of the trade, this rule applies only in relation to so much of the unused allowances as are properly referable to that part of the trade.
Relevant Date: Finance Act 2019