Capital Allowances

29

Further rules apply where short life assets are provided for leasing, there is a sale at an under value or a disposal to connected persons.²⁶²

24A.2.9    Long Life Assets

The writing down allowance for Plant and Machinery is reduced to 6% per annum, calculated on a reducing balance, where it is reasonable to expect that the Plant and Machinery will have an economic life of at least 25 years.²⁶³ This is because of the substantial disparity between the rapid rate at which capital allowances are given and the slow rate at which plant, such as reservoirs and power stations, are written down in the financial accounts of newly privatised companies. Assets excluded from this rule include fixtures in a dwelling house, retail shop, showroom, hotel or office, ships, railways assets and any mechanically propelled road vehicle.²⁶⁴ This reduced rate of allowance is not meant to hurt small businesses and so does not apply where the total expenditure is £100,000 or less; an individual or partnership must satisfy further conditions about active involvement in the business.²⁶⁵ Where this treatment is applied, the long life asset is treated as creating a pool separate from other assets. Other provisions apportion composite expenditure between a long life asset and an asset with a shorter life.²⁶⁶

There are also two rules which are described as anti-avoidance. The first applies where a claim has been made on a long life asset and a later claim is made on the same asset—so the long life rules are to continue to apply even though the new owner might be within the £100,000 exemption.²⁶⁷ The second is where there is a disposal value is less than the notional written down value and there is a scheme to obtain a tax advantage.²⁶⁸

24A.2.10    Motor Vehicles

24A.2.10.1    Full Allowances

Expenditure on certain types of road vehicle can be treated as ordinary expenditure on Plant and Machinery. The favoured vehicles are:²⁶⁹

1. goods vehicles of a construction primarily suited to the carriage of goods or burden of any description;
2. vehicles of a type not commonly used as private vehicles and unsuitable to be so used, for example works buses and minivans;²⁷⁰ and
3. qualifying hire cars, ie vehicles provided wholly or mainly for hire to, or for carriage of, members of the public in the ordinary course of a trade.²⁷¹ Shooting brakes were thought to fall outside this favoured group. Rules distinguish the ordinary car rental business from the

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