Capital Allowances Act 2001 section 242

Restriction on B's qualifying expenditure: general

Section 242 restricts the buyer's qualifying expenditure for plant and machinery allowances in non-sale-and-leaseback transactions where VAT adjustments are involved, replacing the standard restriction rules with a VAT-adjusted version.

• Where the standard restriction on the buyer's qualifying expenditure would apply and an additional VAT liability or rebate has arisen, this section applies instead, ensuring VAT is factored into the calculation
• The buyer's qualifying expenditure is reduced by the amount by which "E" (broadly, the buyer's expenditure plus any additional VAT liability) exceeds "D" (broadly, the seller's disposal value or, if none, the lowest of market value and VAT-adjusted original cost)
• If the seller had no disposal value to bring into account and the seller or a linked person acquired the asset without incurring capital or qualifying revenue expenditure, "D" is nil — meaning the full excess is disallowed
• Where "D" is determined as market value inclusive of VAT, the buyer's expenditure figure "E" is taken without the additional VAT element, to avoid double-counting the VAT already embedded in the market value