Finance (No. 3) Bill (HC Bill 282)

Finance (No. 3) BillPage 250

depreciation, or an impairment, in respect of the
right-of-use asset arising from the lease.

(2) In calculating the profits of the person’s trade, vocation or profession
for the period of account, the amount deducted in respect of amounts
5payable under the lease (after taking account of any limitation as a
result of section 148G) is to be increased or decreased so as to take
account of the remeasurement or deduction mentioned in subsection
(1)(c).

(3) No adjustment is to be made under subsection (2) if the
10remeasurement or deduction results in the person being treated by
section 70D of CAA 2001 (long funding finance lease: additional
expenditure: allowances for lessee) as having incurred further
capital expenditure on the provision of the plant or machinery.”

3 In section 809BZN of ITA 2007 (finance arrangements: exceptions), after
15subsection (9) insert—

(9A) A finance arrangement code does not apply if the arrangement is a
right-of-use lease—

(a) under which the relevant person is a lessee, and

(b) which, were that person required under generally accepted
20accounting practice to determine whether the lease falls to be
treated in the accounts of that person as a finance lease or
loan, would not fall to be so treated.

(9B) In subsection (9A) “right-of-use lease” has the same meaning as in
Part 2 of CAA 2001 (see section 70YI(1) of that Act).”

4 (1) 25CTA 2010 is amended as follows.

(2) In section 288 (sale and lease-back)—

(a) in subsection (5), for sub-paragraph (a) substitute—

(a) falls, in accordance with generally accepted
accounting practice, to be treated in the accounts of
30the lessee—

(i) as a finance charge, or

(ii) as an interest expense where any such
expenditure would fall to be treated in those
accounts as a finance charge if the lessee were
35required under generally accepted accounting
practice to determine whether that
expenditure should be so treated,

(aa) if the lease is a right-of-use lease which is a long
funding finance lease, falls, in accordance with
40generally accepted accounting practice, to be treated
in the accounts of the lessee as an interest expense,
or”, and

(b) in subsection (9), for the definition of “long funding operating lease”
substitute—

  • 45“long funding finance lease”, “long funding operating
    lease” and “right-of-use lease” have the meanings
    given in Part 2 of CAA 2001 (see section 70YI(1) of that
    Act),”.

Finance (No. 3) BillPage 251

(3) In section 331 (meaning of “financing costs” etc)—

(a) in subsection (3), after paragraph (d) insert—

(da) if the company is the lessee under a right-of-use lease
which is a long funding finance lease, any costs
5falling, in accordance with generally accepted
accounting practice, to be treated in the accounts of
the company as interest expenses,”,

(b) in subsection (4)(a), after “finance charge” insert “, or an interest
expense,”,

(c) 10for subsection (6) substitute—

(6) In this section “finance lease” means a lease which—

(a) under generally accepted accounting practice—

(i) falls (or would fall) to be treated, in the
accounts of the lessee or a person connected
15with the lessee, as a finance lease or loan, or

(ii) is comprised in arrangements which fall (or
would fall) to be so treated, or

(b) if the lease is a right-of-use lease—

(i) would fall to be treated in those accounts as a
20finance lease, or

(ii) is comprised in arrangements which would
fall to be so treated,

were the lessee or person connected with the lessee
required under generally accepted accounting
25practice to determine whether the lease falls, or
arrangements fall, to be so treated.”, and

(d) in subsection (9)—

(i) omit the “and” at the end of the definition of “exchange
gains” and “exchange losses”, and

(ii) 30after that definition insert—

  • ““lease” means any arrangements which provide for an asset to be
    leased or otherwise made available by a person to another
    person (“the lessee”), and

  • “long funding finance lease”, “long funding operating lease” and
    35“right-of-use lease” have the meanings given in Part 2 of CAA
    2001 (see section 70YI(1) of that Act).”

(4) In section 377 (lessee under long funding finance lease: limit on deductions),
in subsection (3), after “as finance charges” insert “, or interest expenses,”.

(5) After that section insert—

377A 40 Lessee under long funding finance leases: right-of-use leases

(1) This section applies if—

(a) for the whole or part of any period of account, a company is
the lessee of any plant or machinery under a right-of-use
lease that is a long funding finance lease,

(b) 45there is a change in the amounts payable under the lease, and

(c) as a result of the change and in accordance with generally
accepted accounting practice—

Finance (No. 3) BillPage 252

(i) a remeasurement of the lease liability is shown in the
person’s accounts for the period of account, or

(ii) a deduction is shown in those accounts other than as
an interest expense under the lease or an amount of
5depreciation, or an impairment, in respect of the
right-of-use asset arising from the lease.

(2) In calculating the company’s profits for the period of account, the
amount deducted in respect of amounts payable under the lease
(after taking account of any limitation as a result of section 377) is to
10be increased or decreased so as to take account of the remeasurement
or deduction mentioned in subsection (1)(c).

(3) No adjustment is to be made under subsection (2) if the
remeasurement or deduction results in the company being treated by
section 70D of CAA 2001 (long funding finance lease: additional
15expenditure: allowances for lessee) as having incurred further
capital expenditure on the provision of the plant or machinery.”

(6) In section 381 (interpretation of Chapter 2 of Part 9), in subsection (2), for the
definition of “long funding finance lease” substitute—

  • ““long funding finance lease” means—

    (a)

    20in relation to any person, a long funding lease that
    meets the finance lease test as a result of section
    70N(1)(a) of that Act, or

    (b)

    in relation to a lessee, a right-of-use lease (see section
    70YI(1) of that Act) which is a long funding lease—

    (i)

    25that meets the lease payments test in section
    70O of that Act or the useful economic life test
    in section 70P of that Act, but

    (ii)

    is not a lease that, before a relevant change of
    classification (see section 70YA(11) of that
    30Act), was a long funding operating lease;”.

(7) In section 437 (interpretation of the sales of lessors Chapters)—

(a) for subsection (4) substitute—

(4) “Finance lease” means—

(a) in relation to any person, a lease that, in accordance
35with generally accepted accounting practice, falls (or
would fall) to be treated in the accounts of that person
as a finance lease or loan, or

(b) in relation to a lessee under a right-of-use lease, a
lease that would fall to be treated in the accounts of
40the lessee as a finance lease if the lessee were required
under generally accepted accounting practice to
determine whether the lease falls to be so treated.”,
and

(b) in subsection (6), for “and “long funding operating lease”” substitute
45“, “long funding operating lease” and “right-of-use lease””.

(8) In section 544 (meaning of “property profits” and “property financing
costs”), after subsection (5) insert—

(5A) In subsection (5) “finance lease” means—

Finance (No. 3) BillPage 253

(a) in relation to any person, a lease that, in accordance with
generally accepted accounting practice, falls (or would fall) to
be treated in the accounts of that person as a finance lease or
loan, or

(b) 5in relation to a lessee under a right-of-use lease, a lease that
would fall to be treated in the accounts of the lessee as a
finance lease if the lessee were required under generally
accepted accounting practice to determine whether the lease
falls to be so treated.

(5B) 10In subsection (5A)(b) “right-of-use lease” has the meaning given in
Part 2 of CAA 2001 (see section 70YI(1) of that Act).”

(9) In section 771 (finance arrangements: exceptions), after subsection (9)
insert—

(9A) A finance arrangement code does not apply if the arrangement is a
15right-of-use lease—

(a) under which the relevant person is a lessee, and

(b) which, were that person required under generally accepted
accounting practice to determine whether the lease falls to be
treated in the accounts of that person as a finance lease or
20loan, would not fall to be so treated.”

(9B) In subsection (9A) “right-of-use lease” has the meaning given in Part
2 of CAA 2001 (see section 70YI(1) of that Act).”

5 In section 494 of TIOPA 2010 (corporate interest restriction: other
interpretation), in subsection (1)—

(a) 25for the definition of “finance lease” substitute—

  • ““finance lease”, in relation to a company or a
    worldwide group, a lease which—

    (a)

    in accordance with generally accepted
    accounting practice, falls (or would fall) to be
    30treated, in the accounts of the company or the
    financial statements of the group, as a finance
    lease or loan, or

    (b)

    is a right-of-use lease that would fall to be
    treated in those accounts or financial
    35statements as a finance lease if the company or
    group were required to determine for
    accounting purposes whether the lease falls to
    be so treated;”, and

(b) insert at the appropriate place—

  • 40““right-of-use lease” means a lease in respect of which,
    under generally accepted accounting practice—

    (a)

    a right-of-use asset falls (or would fall) at the
    commencement of the lease to be recognised
    for accounting purposes in the accounts of the
    45lessee, or

    (b)

    a right-of-use asset would fall to be so
    recognised but for the lessee granting a
    sublease of the leased asset,

    and, in determining whether a lease falls within
    50paragraph (a) or (b) at any time in an accounting

    Finance (No. 3) BillPage 254

    period, it is to be assumed that the accounting policy
    applied in drawing up the lessee’s accounts for the
    period also applied at the commencement of the
    lease;”.

5Commencement

6 (1) The amendments made by this Part of this Schedule have effect in relation
to periods of account beginning on or after 1 January 2019.

(2) But, for the purposes of Chapter 7 of Part 10 of TIOPA 2010 (corporate
interest restriction: group-interest and group-EBITDA), the amendments
10made by paragraph 5 have effect in relation to periods of account of a
worldwide group (within the meaning given by section 480 of that Act)
beginning on or after 1 January 2019.

Part 2 Long funding leases

15Amendments to Part 2 of CAA 2001

7 Part 2 of CAA 2001 (plant and machinery allowances) is amended as follows.

Meaning of “short lease”

8 (1) In section 70I (“short lease”)—

(a) in subsections (2) and (9)(d), for “5” substitute “7”, and

(b) 20omit subsections (3) to (8).

(2) In section 70YF (the “term” of a lease)—

(a) in subsection (5)(b), for “5” substitute “7”,

(b) in subsection (6), for “5” substitute “7”, and

(c) omit subsection (7).

(3) 25In section 220 (allocation of expenditure to a chargeable period), in
subsection (4)(c), for “5” substitute “7”.

The lease payments test: interest rate implicit in lease

9 (1) Section 70O (the lease payments test) is amended as follows.

(2) In subsection (4), for paragraph (b) substitute—

(b) 30if a rate cannot be determined in accordance with paragraph
(a), the interest rate implicit in the lease is taken to be 1%
above LIBOR.”

(3) After that subsection insert—

(5) For this purpose—

(a) 35LIBOR means the London interbank offered rate at the
relevant time for deposits for a term of 12 months in the
applicable currency,

(b) the relevant time is the inception of the lease, and

(c) the applicable currency is the currency in which payments
40under the lease are payable.”

Finance (No. 3) BillPage 255

Commencement

10 The amendments made by this Part of this Schedule have effect in relation
to leases entered into on or after 1 January 2019.

Part 3 5Changes to accounting standards and tax adjustments

Repeal of section 53 of FA 2011

11 (1) In FA 2011, omit section 53 (leases and changes to accounting standards).

(2) The amendment made by this paragraph has effect in relation to periods of
account beginning on or after 1 January 2019.

(3) 10But, for the purposes of Chapter 7 of Part 10 of TIOPA 2010 (corporate
interest restriction: group-interest and group-EBITDA), the amendment
made by this paragraph has effect in relation to periods of account of a
worldwide group (within the meaning given by section 480 of that Act)
beginning on or after 1 January 2019.

15Transitional provisions following repeal of section 53 of FA 2011: introductory

12 (1) This paragraph and paragraphs 13 to 17 modify the effect of the change of
basis provisions in relation to periods of account of a lessee beginning on or
after 1 January 2019 if the lease is one—

(a) in respect of which, under generally accepted accounting practice, a
20right-of-use asset falls (or would fall) to be recognised for accounting
purposes in the accounts of the lessee for any period of account
(whether beginning before or on or after that date), and

(b) which would not fall to be treated in those accounts as a finance lease
if the lessee were required under generally accepted accounting
25practice to determine whether the lease would fall to be treated in
those accounts as a finance lease.

(2) In this Part of this Schedule, “the change of basis provisions” means—

(a) Chapter 17 of Part 2 and Chapter 7 of Part 3 of ITTOIA 2005
(adjustment income), and

(b) 30Chapter 14 of Part 3 and sections 261 and 262 of CTA 2009
(adjustment on change of basis).

Cases where asset first recognised for period of account beginning on or after 1 January 2019

13 (1) This paragraph applies if the right-of-use asset falls (or would fall) to be first
recognised for accounting purposes in the accounts of the lessee for the first
35period of account beginning on or after 1 January 2019 (“the first period of
account”).

(2) Any adjustment income or adjustment expense, or any receipt or expense,
treated by any of the change of basis provisions as arising in consequence of
a change of accounting policy that results in the right-of-use asset being first
40recognised for accounting purposes is to be treated as arising over a period
(“the spreading period”) determined in accordance with the following
steps—

Finance (No. 3) BillPage 256

Step 1

Find for each lease the amount by which the credits exceed the debits (or
vice-versa). For this purpose, the credits and the debits are the amounts
which, under generally accepted accounting practice—

(a) 5are taken to equity as adjustments in the accounts of the lessee for the
first period of account, and

(b) are in consequence of the change of accounting policy that results in
the right-of-use asset being first recognised for accounting purposes
in those accounts.

10Step 2

Calculate for each lease the percentage (“the relevant percentage”) that—

(a) the amount found under Step 1 for the lease bears to

(b) the total of all amounts found under Step 1 (treating such amounts as
positive amounts).

15Step 3

Step 4

Step 5

(3) An amount to be treated as arising in any period falling wholly or partly in
the spreading period is to be determined in proportion to the number of
20days of the period falling within the spreading period.

(4) This paragraph is subject to paragraphs 15 and 16 (transfers of leases and
cessation of activities).

Cases where asset first recognised for an earlier period of account

14 (1) This paragraph applies if the right-of-use asset falls (or would fall) to be first
25recognised for accounting purposes in the accounts of the lessee for a period
of account earlier than the first period of account.

(2) The change of basis provisions and this Part of this Schedule have effect—

(a) as if there were a change of accounting policy with respect to the
accounts of the lessee for the first period of account, and

(b) 30as if the right-of-use asset falls (or would fall) to be first recognised
for accounting purposes in those accounts.

(3) In this paragraph “the first period of account” has the same meaning as in
paragraph 13.

Certain cases where there is a transfer of a lease

15 (1) 35This paragraph applies if—

Finance (No. 3) BillPage 257

(a) before the whole of an amount has been treated by paragraph 13 as
arising to the lessee, there is a transfer of a lease or part of a lease
from the lessee to another person,

(b) the transferee is connected to the lessee,

(c) 5immediately after the transfer, the transferee carries on activities the
profits of which are chargeable to income tax or corporation tax, and

(d) the transfer is not one where it is reasonable to suppose that the
transfer is, or arrangements of which the transfer is part are,
designed to avoid tax.

(2) 10The amount is to continue to be dealt with in accordance with paragraph 13
but is to be treated as arising to the transferee over so much of the spreading
period as falls on or after the date on which the transfer takes place.

(3) If, following the transfer, it is necessary to apportion between more than one
person an amount treated by paragraph 13 or this paragraph as arising, the
15apportionment is to be made on a just and reasonable basis.

(4) In this paragraph—

  • “connected” is to be read in accordance with sections 993 and 994 of ITA
    2007 and sections 1122 and 1123 of CTA 2010, and

  • “the spreading period” has the same meaning as in paragraph 13.

20Cases where lessee permanently ceases to carry on activities

16 (1) Sub-paragraph (2) applies if—

(a) before the whole of an amount has been treated by paragraph 13 as
arising, the lessee permanently ceases to carry on activities the
profits of which are chargeable to income tax or corporation tax, and

(b) 25the whole of the amount so far as not treated by paragraph 13 as
arising is not treated by paragraph 15(2) as arising to a transferee.

(2) The amount so far as not otherwise treated as arising—

(a) is to be treated as arising to the lessee, and

(b) is to be brought into account in calculating the profits of the lessee,

30immediately before the cessation.

Application of paragraphs 12 to 16 to lease portfolios

17 (1) This paragraph applies if a lessee, in accordance with generally accepted
accounting practice, prepares accounts by reference to a portfolio of leases
having similar characteristics rather than by reference to the individual
35leases.

(2) Paragraphs 12 to 14 and 16 apply to the portfolio (subject to any necessary
modifications) in the same way as they apply to a lease.

(3) If there is a transfer of the portfolio (or an individual lease within the
portfolio), paragraph 15 applies to the transfer (subject to any necessary
40modifications) in the same way as it applies to the transfer of a lease.

Corporate interest restriction: changes of accounting policy

18 (1) In section 426 of TIOPA 2010 (changes of accounting policy), in subsection

Finance (No. 3) BillPage 258

(3), after paragraph (e) insert—

(f) paragraphs 12 to 17 of Schedule 13 to FA 2019 (transitional
provision following the repeal of section 53 of FA 2011) so far
as they have effect in relation to adjustments under Chapter
514 of Part 3 of CTA 2009 or sections 261 and 262 of that Act.”

(2) The amendment made by this paragraph has effect in relation to periods of
account of a worldwide group (within the meaning given by section 480 of
TIOPA 2010) beginning on or after 1 January 2019.

Corporate interest restriction: treatment of certain adjustments

19 (1) 10Sub-paragraph (2) applies if—

(a) an amount is brought into account for corporation tax purposes for a
period of account beginning on or after 1 January 2019 as a receipt or
expense treated by any of the change of accounting policy provisions
as arising to a company which is a lessee,

(b) 15the receipt or expense is treated as arising to the company in
consequence of a change of accounting policy relating to a lease in
respect of which the company is the lessee,

(c) under the old accounting policy, the lease fell to be treated as a
finance lease in the accounts of the company, and

(d) 20under the new accounting policy, the lease would fall to be treated as
a right-of-use lease in those accounts but for—

(i) the short term of the lease, or

(ii) the low value of the leased asset.

(2) For the purposes of Part 10 of TIOPA 2010 (corporate interest restriction)—

(a) 25if the amount is brought into account as an expense, “tax-interest
expense amount” (see section 382 of that Act) does not include that
amount;

(b) if the amount is brought into account as a receipt, “tax-interest
income amount” (see section 385 of that Act) does not include that
30amount.

(3) This paragraph has effect in relation to adjustments to which the financial
statements of a worldwide group are treated by section 426 of TIOPA 2010
(changes in accounting policy) as subject in the same way as it has effect in
relation to adjustments made under the change of accounting policy
35provisions by a company and accordingly—

(a) if the amount is brought into account as an expense, “relevant
expense amount” (see section 411(1) of that Act) does not include that
amount;

(b) if the amount is brought into account as a receipt, “relevant income
40amount” (see section 411(2) of that Act) does not include that
amount.

(4) In this paragraph—

  • “the change of accounting policy provisions” means Chapter 14 of Part
    3 and sections 261 and 262 of CTA 2009 (adjustment on change of
    45basis), and

  • “right-of-use lease” has the meaning given by section 494 of TIOPA
    2010 (other interpretation).

Finance (No. 3) BillPage 259

Section 36

SCHEDULE 14 Oil activities: transferable tax history

Part 1 Election to transfer tax history

5Entitlement to make a TTH election

1 This Schedule applies if, on or after 1 November 2018, the OGA gives
consent for a company (the “seller”) to sell an interest in a UK oil licence to
another company (the “purchaser”).

2 (1) On or after the licence transfer date, the seller and purchaser may jointly
10make a TTH election in respect of an interest (“the TTH asset”) in a
transferred oil field (the “TTH oil field”).

(2) A “TTH election” is an election for—

(a) an amount of the seller’s ring fence profits (the “total TTH amount”)
to be treated, in accordance with the provisions of this Schedule, as
15if it were an amount of the purchaser’s profits (instead of the seller’s
profits), and

(b) a corresponding amount of the seller’s adjusted ring fence profits to
be so treated for the purpose of Chapter 6 of Part 8 of CTA 2010
(supplementary charge).

20Part 2 The total TTH amount

The total TTH amount

3 (1) The total TTH amount may comprise—

(a) an amount representing the seller’s eligible ring fence profits for the
25reference accounting period, and

(b) amounts representing the seller’s eligible ring fence profits for so
many of the preceding accounting periods ending on or after 17
April 2002 as the seller and purchaser may determine.

(2) Sub-paragraph (1) is subject to—

(a) 30paragraph 4 (limits on total TTH amount),

(b) paragraph 11 (consecutive accounting periods), and

(c) paragraph 12 (the transferred profits amount for an accounting
period).

(3) See—

(a) 35paragraph 13 for the meaning of “eligible ring fence profits”, and

(b) paragraph 102 for the meaning of “reference accounting period” in
relation to the seller.

Limits on total TTH amount

4 The total TTH amount must not exceed the lower of—