Revenue Note for Guidance

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Revenue Note for Guidance

291 Computer software


Prior to the changes introduced in the Finance Act 2010, where a trader incurred capital expenditure in acquiring computer software or a right to use such software for the purposes of the trade, that acquisition was to be regarded as an acquisition of machinery or plant and, accordingly, capital allowances applied in respect of the expenditure so incurred. In effect, the expenditure so incurred could have been written off over the same period as is the case for conventional machinery or plant (see section 284).

The Finance Act 2010 introduced a more coherent treatment of computer software by distinguishing between computer software for end use within a business and computer software acquired for commercial exploitation. The former will continue to qualify for the normal plant and machinery allowances under this section, whereby expenditure is written off over 8 years, while the software acquired for commercial exploitation will qualify for allowances under the intangible assets scheme in section 291A, with allowances based on accounting depreciation or a fixed rate over 15 years. To accommodate companies with planned investments, the Finance Act 2010 provided a transition period of 2 years during which a company may elect to claim relief under this section i.e. section 291 in respect of capital expenditure on computer software acquired for commercial exploitation.


(1) Subject to subsection (3) where capital expenditure has been incurred on the right to use or otherwise deal with computer software for the purposes of a trade, the right to use the software and the software itself is to be treated as machinery or plant provided for the purposes of the trade and, for so long as the person is entitled to that right, that machinery or plant will be treated as belonging to the person. In effect, this provision establishes title to machinery or plant capital allowances in respect of such expenditure.

(2) Where a person carrying on a trade has incurred capital expenditure on providing computer software for the purposes of the trade and, as a result of that expenditure, the computer software belongs to that person, then, if the computer software does not constitute machinery or plant (for example, the software may not be in tangible form such as on disk or CD-ROM but may have been transmitted electronically), it will nonetheless be treated as machinery or plant.

(3) Subsection (3) provides that, in the case of a company acquiring computer software of an end-user type for use in its trade and not for the purposes of the commercial exploitation of that software, then relief will be available subject to the provisions of this section.

(4) Subsection (4) applies transitional provisions to facilitate companies with planned capital expenditure investments. Companies may elect to claim capital allowances under this section for capital expenditure on computer software incurred in the 2-year period up to 4 February 2012. The claim must be made in the company’s annual corporation tax return for the accounting period in which the capital expenditure is incurred and within 12 months from the end of that accounting period.

Relevant Date: Finance Act 2017