Following concerns by HMRC that a number of utility companies were making significant new claims for Capital Allowances on plant & machinery effectively paid for by their business customers, amendments were today introduced which tighten up the rules on Contribution Allowances.

It was always intended that where a taxpayer received a subsidy towards the cost of an asset that qualified for Capital Allowances, then that subsidy must be netted off against any claims made for qualifying expenditure on the asset.

It would appear however, that this has not been the case for some utility companies and HMRC have estimated that new claims being made by them could have resulted in £900m of lost tax to the Exchequer.

Today’s changes, which have immediate effect, make amendments to the existing s538 of CAA2001 and confirm claims cannot be made by a person on new or past expenditure where the cost of the qualifying plant & machinery is met by another person - the contributor - rather than that person, the recipient.

The changes also mean that in certain circumstances where the recipient has already pooled expenditure which would not be allowable under the amended legislation, the amount of the unrelieved portion must be brought into account as a disposal value.

In announcing the amendments HMRC have also stated they will be robust in challenging those claims that have already been submitted.

It should be stressed that these changes are not intended and will not have any impact on the ability to make a claim for Contribution Allowances by any taxpayer who, in the course of their trade or qualifying activity, makes a capital contribution towards another person’s expenditure - for example a landlord making a capital contribution towards the cost of a tenant’s fit out works.