Finance (No. 3) Bill (HL Bill 304)

(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 257

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 258

(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 259

(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).