CA23350 - Plant and Machinery Allowances (PMA): hire purchase: abortive expenditure

CAA01/S67

The heading to CAA01/S67 says that it is about hire purchase and similar contracts.

In certain circumstances the expenditure under a hire purchase or similar contract may be abortive expenditure. In other words. a person may incur capital expenditure on an asset which is never actually owned, perhaps because the buyer withdraws from the supply contract or because the supplier defaults or for some other reason.

In ordinary circumstances, a person cannot claim PMAs on abortive expenditure because it will not be possible for the person to satisfy the ownership condition in Section 11(4)(b).

Where a person incurs capital expenditure under a hire purchase or similar contract on the provision of machinery or plant for the purposes of a qualifying activity and the contract provides that he ‘shall or may become the owner of the plant or machinery on the performance of the contract’, CAA01/S67(1)(a) treats the machinery or plant as being owned by the person.

Therefore, abortive expenditure incurred under such a contract, for example a deposit paid on machinery which is never actually supplied, will qualify for PMA because of Section 67(1)(a).

However, when the taxpayer ceases to be entitled to the benefit of the contract without becoming the owner of the asset Section 67(4) treats the taxpayer as ceasing to own the asset. This means that the taxpayer will have to bring a disposal value to account. There is guidance about disposal values at CA23330.