Cushion gas
The measure
While the Government confirmed in last year's Budget that cushion gas constituted plant within the context of gas storage businesses, there has been uncertainty around its treatment as a long-life asset or otherwise. On the view that the gas itself does not wear out, the Government is now to legislate to include expenditure on this asset within the list of "special rate" expenditure and therefore subject to a writing down allowance of 10% per annum (reducing balance) rather than the main pool rate of 20% per annum (reducing balance).
In addition, the Government will be introducing legislation to treat leases of cushion gas as funding leases. The effect of this will be that where such leases are for a term of five or more years they would be subject to the long funding lease rules with the effect that the capital allowances will be available to the lessee rather than the lessor.
Who will be affected?
All businesses incurring expenditure on cushion gas, within a gas storage context, as well as lessors and lessees of cushion gas.
When?
Legislation will be introduced for expenditure incurred on or after 1 April 2010 in relation to the rate of writing down allowances available in respect of expenditure incurred on cushion gas. With regard to funding lease treatment, legislation will be introduced to apply to leases commencing on or after 1 April 2010.
The lack of certainty around whether writing down allowances would be available in respect of expenditure incurred on cushion gas was previously removed in the announcement in Budget 2009 and welcomed by relevant businesses. The measures announced today, however, are disappointing in terms of the classification of such expenditure as only subject to the lower rate of plant and machinery allowances. The leasing of cushion gas being automatically designated as a funding lease, where it would not otherwise meet the economic life test for such classification, will reduce the flexibility available for lessors.
