Tax avoidance, and perceived even if not actual tax avoidance, is fast rising up the political agenda. On 29 May 2013 the Chancellor, George Osborne, announced measures to prevent utility companies (and others) from claiming capital allowances for expenditure which they have incurred, but which has been funded by others (e.g. their business customers).
The Treasury said that such claims had begun to be made by some utility companies this year, to the tune of £50m, and, if successful (these claims are being resisted), could have cost it up to £900m in relation to claims for allowances on historic capital expenditure.
These capital allowances claims have been described as windfall claims, because the utility companies have not, in economic terms, borne the full expenditure in question e.g. used to upgrade or connect gas or electricity supply lines to businesses.
The changes confirm that it is the contributor, not the recipient, who may claim capital allowances where a contribution is made of a capital sum to capital expenditure on the provision of plant or machinery in the recipient's hands. So, where a business contributes to or funds a utility company's connection or upgrade work where the utility company owns the plant, the contributor will be treated as if it owned the plant for the purpose of its business and will be entitled to any available capital allowances.
The changes had immediate effect from 29 May and will be enacted in the Finance Act 2013. The Government announcement and draft legislation can be found by clicking here.
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