769B Annual allowances for capital expenditure on purchase of capacity rights

This section provides that capital allowances are available in respect of qualifying expenditure incurred by a company on or after 1 April, 2000 on the acquisition of capacity rights. The qualifying expenditure is written off by equal annual instalments over a period of 7 years or, over the life of the purchasing agreement, where it exceeds 7 years.

Writing-down allowances

(1) Writing-down allowances are made available for qualifying expenditure incurred on or after 1 April, 2000 by a company on the purchase of capacity rights. The allowances are only given, however, in taxing a company’s trade or where a company is liable to tax in respect of the income from the capacity rights.

Writing-down period

(2)(a) & (b) Allowances are available over a writing-down period of 7 years or, if greater, over the number of years for which the capacity rights are purchased, beginning with the chargeable period in which the expenditure is incurred. Allowances are given in equal instalment over the writing-down period.

Pre-trading expenditure

(2)(c) Pre-trading expenditure is to be treated as incurred on the first day on which trading commences unless before that day the company concerned has sold all the capacity rights on which that expenditure was incurred.

Restriction on allowances

(3) The writing down allowance is denied to a company which incurs qualifying expenditure on transmission capacity rights from another group company unless that second company had been entitled to an allowance itself in respect of those rights. This prevents the allowance being artificially created within the group.

A “group of companies” is defined as a company and all other companies of which it has control or with which it is associated.

A company is associated with another if it could reasonably be considered that —

1. the activities carried on by both companies are or can be directed by the same person or by broadly the same group or groups of persons, or
2. the same person or broadly the same group or groups of persons exercise or can exercise control over both companies.

Relevant Date: Finance Act 2021