CIRD60050 - Remediation of contaminated land: deduction for capital expenditure: pre-commencement expenditure

Where a company incurs capital expenditure on qualifying land remediation (see CIRD60145 for definition) before it commences its trade or Schedule A business, for the purposes of an election the expenditure is treated as having been incurred:

• on the first day on which the trade or Schedule A business commenced, and
• in the course of carrying on that trade or Schedule A business.

(FA01/SCH22/PARA1 (3)).

However, a company cannot make an election in respect of capital land remediation expenditure incurred before 11 May 2001 (FA01/SCH22/PARA32).

Example

Company A acquires contaminated land in the UK on 1 January 2001. It intends building a factory on the site in order to commence a manufacturing trade. Between 1 February 2001 and 30 June 2001 it incurs £50,000 capital expenditure on relevant land remediation, £30,000 of which relates to the period before 11 May 2001. The factory is completed, staffed and made ready to start production, opening its doors to commence trading on 1 January 2002.

The company, on making the appropriate election, is entitled to a deduction of £20,000 (£50,000 less £30,000) in computing its Case I profit (or loss) for CT purposes. The company can only claim land remediation relief in respect of £20,000 of the expenditure (see CIRD60015), giving it a total enhanced deduction of £30,000 in its Case I tax computation for its first trading period of account.