Section 87 Finance Act 2008 - Investment Friend

section companies act securities finance stocks

Section 87 of the Finance Act 2008 in the United Kingdom addressed corporation tax and capital allowances, specifically focusing on expenditure incurred on remediating contaminated land and long-life assets. It aimed to clarify and refine the tax treatment of these areas, providing businesses with more certainty and encouraging investment in environmentally beneficial projects.

Regarding contaminated land remediation, Section 87 amended existing legislation (primarily the Capital Allowances Act 2001) to clarify the scope of qualifying expenditure. Previously, ambiguity existed around what costs were directly related to removing contaminants versus those that constituted general land improvements. This led to disputes between businesses and HM Revenue & Customs (HMRC) regarding the eligibility of certain expenditures for tax relief. The amendment aimed to streamline the process by providing a clearer definition of what constituted qualifying remediation expenditure, making it easier for businesses to claim appropriate tax relief. This included specifying that costs related to identifying, assessing, and removing contaminants, as well as managing and monitoring the remediation process, could be eligible for capital allowances.

The objective was to incentivize businesses to clean up contaminated sites, as the associated costs could be substantial. By providing more favorable tax treatment for these expenses, the government hoped to encourage brownfield redevelopment and reduce the environmental risks posed by contaminated land. The amendments under Section 87 sought to remove disincentives by ensuring that businesses could recover a portion of their remediation costs through capital allowances, thus making such projects more financially viable. Without such relief, the high cost of remediation could act as a barrier to the development of previously used land, contributing to urban sprawl and the degradation of greenfield sites.

Another key aspect of Section 87 dealt with long-life assets. These are assets that are expected to have a particularly long operational life, typically 25 years or more. The Act addressed the rules governing capital allowances for these types of assets, aiming to ensure that the tax treatment reflected their extended lifespan. The changes related to the rate at which capital allowances could be claimed, and aimed to provide a more appropriate framework for the depreciation of these assets over their extended use. Essentially, the allowances are spread out over a longer period reflecting the longer lifespan of the asset.

The rationale behind adjusting the capital allowance rules for long-life assets was to prevent businesses from claiming excessively high allowances in the early years of an asset’s life, which could distort investment decisions and potentially create unfair tax advantages. By aligning the rate of allowance with the asset’s expected lifespan, the government aimed to achieve a fairer and more consistent tax treatment. This ensures that the tax benefits are spread out over the entire period the asset generates income.

In summary, Section 87 of the Finance Act 2008 provided important clarifications and adjustments to the capital allowance regime in the UK, particularly in the areas of contaminated land remediation and long-life assets. It aimed to encourage environmentally beneficial activities and ensure a more consistent and equitable tax treatment of long-lived assets, ultimately promoting investment and sustainable development.