CA23122 - Plant and Machinery Allowance (PMA): First Year Allowance (FYA): Plant and machinery in freeport and investment zone special tax sites: Qualifying expenditure

CAA01/S45O, F(No.2)A 2023/S332(4)-(5), SI 2024/574

Legislation was introduced into Finance Act 2021 to provide a 100% FYA (also known as an enhanced capital allowance) for companies investing in plant and machinery for use in freeport tax sites.  Finance (No.2) Act 2023 redefined those areas as special tax sites and extended the 100% FYA to Investment Zones.  The FYA is not available to businesses which are chargeable to income tax.

This FYA is available for qualifying expenditure incurred by a company on the provision of plant and machinery which meet all the following conditions:

  • the plant or machinery is for use primarily in a special tax site at the time the expenditure is incurred 
  • the plant or machinery must be unused and not second-hand
  • the expenditure is incurred for the purpose of a qualifying activity within CAA01/S15(1)(a) or (f), that is one of the following:
    • a trade
    • a mine, quarry or canal or other concern giving rise to profits from land charged to tax as a trade under ITTOIA05/S12(4) or CTA09/S39(4)
  • the expenditure is incurred on or before the applicable sunset date in relation to the special tax site concerned
  • the company is within the charge to corporation tax
  • the expenditure must not be within any of the general exclusions in CAA01/S46 CA23113.

These rules apply in the same way for special tax sites situated in ‘Green Freeports in Scotland’.

What is a special tax site?

A special tax site is a designated area of land associated with a freeport or investment zone in which certain tax reliefs are available for investment in that area, including the 100% FYA for plant and machinery. A special tax site is designated through secondary legislation. Maps of freeports and freeport special tax sites (GOV.UK) and Maps of investment zones and investment zone special tax sites provide maps of sites where the FYA for special tax sites is available.

What is meant by primarily?

‘Primarily’ takes its ordinary meaning. Holding plant or machinery for secondary use outside of a special tax site will not prevent the expenditure from being eligible for the FYA.

This is subject to:

  • an anti-avoidance rule at the time the expenditure is incurred (CA23126)
  • a subsequent requirement that the plant or machinery remains primarily for use in a special tax site for a 5-year period (CA23128).

What is meant by unused and not second-hand?

You can accept that plant or machinery is unused and not second-hand even if it has undergone some limited use for the purposes of testing, delivery or demonstration.

The applicable sunset date in relation to the special tax site concerned

The applicable sunset date is: 

  • 30 September 2031 for special tax sites in English freeports
  • 30 September 2034 for special tax sites in Scottish and Welsh freeports and all investment zones.