Capital Allowances Act 2001 section 45R

Effect of failing to comply with ongoing requirements

Section 45R sets out the consequences when plant or machinery that qualified for freeport tax site first-year allowances ceases to be used primarily within a freeport tax site during the five-year monitoring period.

• If, within five years, the plant or machinery is primarily used outside the freeport tax site (as designated when the expenditure was incurred), the first-year allowance is clawed back — the expenditure is treated as never having qualified
• The five-year monitoring period runs from when the asset is first brought into use for a qualifying activity or first held for such use, whichever is earlier, and applies whether the asset is owned by the original company or a connected person
• The Treasury has a regulation-making power to add, remove or alter the circumstances triggering clawback, but any such regulations can only apply to expenditure incurred on or after the date the regulations come into force
• Where the clawback applies, all necessary tax assessments and adjustments must be made, and any person whose return becomes incorrect as a result must notify HMRC within three months of becoming aware of the error