What does section 405 of the Capital Allowances Act 2001 do when buildings used in mineral extraction cease to be used?

Section 405 provides a mechanism for calculating qualifying expenditure that can still be recognised for mineral extraction allowance purposes when a building or structure permanently ceases to be used. The calculation involves an amount referred to as 'A', which forms the basis for determining the remaining qualifying expenditure available.

How does Schedule 3 paragraph 84 modify the calculation of amount 'A' under section 405?

Schedule 3 paragraph 84 modifies the calculation of 'A' so that if buildings or structures permanently ceased to be used for any purpose before 27 July 1989, agricultural buildings allowances previously claimed must be excluded from 'A'. This prevents old agricultural allowances from inflating the qualifying expenditure figure in the mineral extraction allowances computation.

Does the exclusion of agricultural buildings allowances from amount 'A' apply to all cessations of use?

No. The exclusion only applies where buildings or structures permanently ceased to be used for any purpose before 27 July 1989. For buildings or structures that ceased to be used on or after that date, agricultural buildings allowances do not need to be stripped out of 'A', and the full expenditure amount can be included in the qualifying expenditure calculation.

Can you give a practical example of how section 405 works with the Schedule 3 paragraph 84 modification?

If a company spent £200,000 on a mineral extraction building and claimed £50,000 in agricultural buildings allowances, and the building ceased use in March 1988, only £150,000 would be recognised within 'A'. Had cessation occurred after 27 July 1989, the full £200,000 could be included without excluding the agricultural allowances.

Capital Allowances Act 2001 section 405

Qualifying expenditure where buildings or structures cease to be used

Section 405, as modified by Schedule 3 paragraph 84, deals with how qualifying expenditure is calculated when buildings or structures used in mineral extraction permanently cease to be used, and specifically excludes old agricultural buildings allowances from that calculation in certain circumstances.

Section 405(3) uses a formula involving the amount "A" to determine qualifying expenditure when buildings or structures permanently cease to be used.
Where buildings or structures permanently ceased to be used for any purpose before 27 July 1989, agricultural buildings allowances must be excluded from the amount "A" in that formula.
This restriction only applies to cessations of use that occurred before 27 July 1989; later cessations are not affected by this exclusion.
The effect is to reduce the qualifying expenditure available for mineral extraction allowances in these older cases by stripping out the historical agricultural buildings allowance element.

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