Capital Allowances Act 2001 section 348

Additional VAT liabilities and writing off initial allowances

Section 348 explains how an initial allowance relating to an additional VAT liability is written off when the building has already been brought into use.

• Where an initial allowance is made for an additional VAT liability arising after the building is first used, the allowance is written off when the liability accrues.
• Most cases involve enterprise zone expenditure attracting a 100% initial allowance, so the residue increases by the additional VAT liability and is immediately reduced by the same amount.
• Where a reduced initial allowance applies (for example at 20%), the residue increases only by the difference between the additional VAT liability and the initial allowance actually made.
• The write-off timing is linked to the point at which the additional VAT liability accrues, not when it is paid or assessed.