Capital Allowances Act 2001 section 447

Additional VAT liability treated as additional expenditure etc.

Section 447 explains how an additional VAT liability arising in connection with qualifying research and development expenditure is treated for capital allowance purposes, and when the resulting allowance is given.

• Where a person has incurred qualifying expenditure on research and development and later incurs an additional VAT liability in respect of that expenditure, the additional liability is treated as capital expenditure on the same research and development as the original expenditure.
• This treatment does not apply if, by the time the additional VAT liability arises, the person no longer owns the asset that the original expenditure relates to, or if that asset has been demolished or destroyed.
• Any allowance arising from the additional VAT liability is given for the chargeable period in which the liability accrues, rather than for the period that would normally apply under the general rules in section 441(2).
• If the additional VAT liability accrued before the chargeable period in which the relevant trade was set up and commenced, the allowance is instead given for that start-up chargeable period.