What does section 220 of the Capital Allowances Act 2001 do?

Section 220 restricts the qualifying expenditure a group company can claim for capital allowances in the chargeable period when it buys plant or machinery for leasing under a finance lease or qualifying operating lease. It time-apportions the expenditure so that only the portion after the date of incurrence qualifies, with the excluded amount carried forward to later periods.

How does the time-apportionment restriction work under section 220?

When a group company incurs expenditure partway through a chargeable period on plant for leasing, the portion corresponding to the elapsed part of the period before incurrence is excluded from qualifying expenditure for that period. For example, if expenditure is incurred three-quarters through the period, only one-quarter qualifies for writing-down allowances in that period.

Is the excluded expenditure under section 220 permanently lost?

No. The excluded portion of expenditure is not permanently lost. It is carried forward and included in the company's available qualifying expenditure pool for subsequent chargeable periods. The company ultimately receives full capital allowances relief — the restriction simply defers the timing of the claim rather than eliminating it.

When does the time-apportionment restriction under section 220 not apply?

The time-apportionment restriction does not apply if a disposal event occurs in respect of the plant or machinery in the same chargeable period as the expenditure is incurred. In that case, the company brings the full qualifying expenditure into account and offsets the disposal value against it, calculating allowances or charges on the net amount in the normal way.

Capital Allowances Act 2001 section 220

Allocation of expenditure to a chargeable period

Section 220 restricts the amount of qualifying expenditure a group company can claim for capital allowances in the chargeable period when it buys plant or machinery for leasing under a finance lease or a qualifying operating lease, by time-apportioning the expenditure within that period.

When a group member company incurs capital expenditure on plant or machinery for leasing partway through a chargeable period, the proportion of expenditure relating to the part of the period before the expenditure was incurred cannot be claimed as qualifying expenditure in that period.
The disallowed portion is not lost permanently — it can be included in the company's available qualifying expenditure for subsequent chargeable periods.
The time-apportionment restriction does not apply if a disposal event occurs in the same chargeable period as the expenditure is incurred, so that the company simply claims the net amount of qualifying expenditure less any disposal value.
A "qualifying operating lease" for these purposes is a plant or machinery lease that is not a finance lease but is a funding lease, with a term of more than 4 years but no more than 7 years.

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