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The SBA legislation treats part of a building as a building unless the context otherwise requires in line with general Capital Allowances Rules CA11600.

Separate treatment of each part of expenditure

Expenditure on constructing a building may be incurred at different times or by different people. For example, the lessee of a factory may build an extension to it. The lessor may hold the relevant interest in the original factory building CA90600 and the lessee will hold the relevant interest in the extension CA90700.

You should apply the SBA legislation to each part of expenditure separately. In the example in the paragraph above, the SBA for the factory owner and the lessee are calculated separately.

Once a building comes into use, any later expenditure incurred must be claimed separately.聽 If the factory owner had incurred the expenditure on the construction of the factory, brought it into use and subsequently built an extension, SBA on the original factory and the extension must be calculated separately. However, where later expenditure is incurred on different days, it may be added together into a single claim CA93450.

Example

MD Pet Supplies Ltd (鈥楳D鈥�) owns a large site on which it operates its pet food factory and distribution business.聽 MD鈥檚 chargeable periods end on 31 December.聽 It decides to build a new factory on its site to produce dog food at a cost of 拢10 million and brings it into use on 1 January 2021.聽 MD can claim SBA on the 拢10 million construction costs at 3% per year = 拢300,000 a year until 30 April 2054.聽

MD sees an opportunity to expand into the cat food business and builds an extension to the new factory for this purpose at a cost of 拢3 million.聽 It brings the extension into use on 1 July 2022.聽 MD can claim SBA on the 拢3 million conversion costs at 3% per year = 拢90,000 per year until 31 October 2055.聽 However, the part of the building, which forms the extension, was brought into use part way through the chargeable period so the SBA is apportioned on a time basis giving 拢90,000 脳 (6梅12) = 拢45,000.

MD鈥檚 SBA claims will be as follows, providing MD continues to hold the relevant interest:

• YE 31 December 2021: 拢300,000 (拢10 million 脳 3%), claimable until YE 31 December 2053
• YE 31 December 2022: 拢300,000 + 拢45,000 (拢3 million x 3% x (6梅12))
• YE 31 December 2023: 拢300,000 + 拢90,000 (拢3 million x 3%), claimable until YE 31 December 2053
• YE 31 December 2054: 拢100,000 (拢10 million x 3% x (4梅12)) + 拢90,000
• YE 31 December 2055: 拢75,000 (拢3 million x 3% x (10梅12))