Capital Allowances Act 2001 section 236

Additional VAT liability generates first-year allowance or annual investment allowance

Section 236 ensures that when an additional VAT liability arises in respect of plant or machinery, it can qualify for the same type of capital allowance — either a first-year allowance or an annual investment allowance — as the original expenditure on that asset.

• Where the original expenditure qualified for a first-year allowance (FYA), any additional VAT liability is treated as first-year qualifying expenditure of the same type, attracting the same rate of FYA in the period the liability accrues.
• Where the original expenditure qualified for an annual investment allowance (AIA), the additional VAT liability is likewise treated as AIA qualifying expenditure in the period it accrues.
• In both cases, the additional VAT liability only qualifies if the plant or machinery is still being used for the purposes of the qualifying activity at the time the liability is incurred.
• The availability of these allowances is subject to general exceptions and anti-avoidance rules set out elsewhere in the Act.