Capital Allowances Act 2001 section 228MB

Calculation of present value

Section 228MB sets out how to calculate the present value of amounts for the purposes of restricting qualifying expenditure where plant or machinery subject to a lease is disposed of and income is retained.

• The present value of an amount must be calculated using the interest rate implicit in the lease.
• The implicit interest rate is the rate that would apply under normal commercial criteria, including generally accepted accounting practice where applicable.
• If the implicit rate cannot be determined commercially, the incremental borrowing rate (as defined for accounting purposes) is used instead.
• The Treasury has the power to make regulations replacing references to the incremental borrowing rate with references to another rate.