Taxes Consolidation Act 1997 section 319

Adjustment of allowances by reference to value-added tax

Section 319 ensures that VAT which can be reclaimed is excluded from the cost of assets and expenditure when calculating capital allowances, and that VAT is similarly excluded from disposal proceeds when calculating balancing adjustments.

• Where a person can reclaim VAT (either by deduction or refund), the reclaimable VAT must be stripped out of the cost of machinery, plant or other capital expenditure before calculating any capital allowance or relief.
• This rule applies to capital allowances on industrial buildings, machinery or plant, dredging, farm buildings, mining expenditure, and expenditure on scientific research and staff training.
• When calculating a balancing allowance or balancing charge on the disposal of an asset, the sale, insurance, salvage or compensation proceeds must also exclude any VAT chargeable on those amounts.
• In practice, a VAT-registered trader claims capital allowances on the VAT-exclusive cost, while a non-VAT-registered trader claims on the VAT-inclusive cost, since the latter cannot reclaim the VAT.