Clause 41 - Plant and machinery: restricting exception for manufacturers and suppliers

Part of Finance Bill – in a Public Bill Committee at 1:15 pm on 14 June 2012.

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Photo of David Gauke David Gauke The Exchequer Secretary 1:15, 14 June 2012

Clause 41 is related to the changes being introduced by clause 42 and schedule 9 to improve the generic plant and machinery capital allowance anti-avoidance rules. The clause removes the special exception known as the “manufacturers and suppliers” exception from those generic rules, but only when the transaction has an avoidance purpose. The capital allowance anti-avoidance rules applying to transactions involving plant or machinery are being amended in the Bill to make them more effective at preventing tax avoidance.

We announced this proposal in the 2011 Budget, and a formal consultation took place over the summer of 2011. One of our original proposals was to repeal a  section of the Capital Allowances Act 2001, which broadly excludes transactions from the anti-avoidance rules when plant or machinery is acquired new from manufacturers and suppliers. There were concerns that this exception was being exploited for avoidance purposes.

During the consultation, HMRC became aware that an avoidance scheme was being marketed that was designed to take advantage of the manufacturers and suppliers exception in advance of its repeal. To counter that scheme, the Government announced that this particular exception would be repealed, in part, with effect from 12 August 2011.

In our statement at that time, we also said that consultation responses would be taken into account when finalising the legislation. Respondents to the consultation subsequently pointed out that certain commercial transactions between connected parties that have no avoidance purpose could be adversely affected by the August announcement. We therefore decided, in effect, to reinstate the manufacturers and suppliers exception, but only for transactions that do not have an avoidance purpose.

The modified repeal, which is effective from 12 August 2011 in terms of this clause, counters abuse, which is the concern raised by the hon. Lady, without adversely affecting commercial transactions that have no avoidance purpose. I hope that the clause can stand part of the Bill.