Capital Allowances Act 2001 section 245

Effect of election under section 227 on additional VAT liability

Section 245 deals with the consequences for additional VAT liabilities when a seller-lessee has made a special election in the context of a sale and leaseback or sale and finance leaseback arrangement.

• Where a section 227 election has been made for special treatment in a sale and leaseback, any additional VAT liability incurred by the seller-lessee on the related plant or machinery is caught by the same restrictions
• No capital allowance of any kind may be claimed by the seller-lessee in respect of that additional VAT liability
• The additional VAT liability must be completely excluded when calculating the seller-lessee's available qualifying expenditure for any period
• This ensures consistent treatment so that the VAT element cannot be used to obtain allowances that are denied on the underlying capital expenditure itself