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| In Chapter 10A (long funding leases)— |
| | | | | Leases of plant or machinery: |
| | | | | special rules for long funding |
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Commencement and transitional provisions |
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15 (1) | The amendments made by this Schedule have effect in the case of a lease if— |
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(a) | Condition A is met, or |
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(b) | if Condition A is not met, Condition B is met, |
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| and the lease is not one that was finalised (see paragraph 23) before 21st July |
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(a) | the lease is finalised on or after 1st April 2006, or |
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(b) | the commencement of the term of the lease is on or after that date, |
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| and the lease is not an excepted lease (see paragraph 17). |
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(a) | the lease was finalised before 1st April 2006, or |
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(b) | the commencement of the term of the lease was before that date, |
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| but the plant or machinery is on or after that date brought into use for the |
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purposes of a qualifying activity carried on by the person concerned. |
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(4) | The amendments made by this Schedule also have effect in relation to a |
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lease, in the case of the lessor, if— |
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(a) | an election under paragraph 16 is in force in the case of the lease, and |
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(b) | the election has effect in the case of the lessor. |
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Election for lease to be treated as long funding lease for tax purposes |
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16 (1) | The Treasury may by regulations make provision enabling a person of a |
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prescribed description who is, or is to be, the lessor under a plant or |
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machinery lease of a prescribed description to make an election for the lease |
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to be treated in his case as a long funding lease. |
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(2) | The power to make regulations under this paragraph includes power to |
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make provision for or in connection with any of the following— |
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(a) | any conditions that must be met if an election is, or is to be, made; |
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(b) | whether an election is irrevocable; |
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(c) | the date on and after which an election has effect; |
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(d) | the manner in which an election is to be made. |
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(3) | The power to make regulations under this paragraph includes— |
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(a) | power to make provision having effect in relation to times before the |
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making of the regulations (but not before 1st April 2006), |
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(b) | power to make different provision for different cases, |
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(c) | power to make incidental, consequential, supplemental, or |
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transitional provision or savings. |
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”election” means an election under this paragraph; |
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“long funding lease” means a lease which is a long funding lease for the |
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purposes of Part 2 of CAA 2001; |
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“prescribed” means specified in, or determined in accordance with, |
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regulations under this paragraph. |
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17 (1) | A lease is an excepted lease if the following conditions are met. |
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(2) | Condition 1 is that before 21st July 2005 there was evidence in writing that |
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there was agreement, or a common understanding, between the lessor’s side |
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and the lessee’s side as to the principal terms of the lease (the “pre-existing |
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| The definitions of “the lessor’s side”, “the lessee’s side” and “the principal |
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terms” are in paragraph 27. |
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(3) | Condition 2 is that the leased plant or machinery was under construction |
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(see paragraph 24) before 1st April 2006. |
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(4) | Condition 3 is that the lease has been finalised before 1st April 2007 (but see |
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(5) | Condition 4 is that the commencement of the term of the lease is before 1st |
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April 2007 (but see sub-paragraph (8)). |
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(6) | Condition 5 is that the lessee is the particular person or persons identified as |
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such in the pre-existing heads of agreement. |
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(7) | Condition 6 is that the principal terms of the lease are not (or, apart from |
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section 70M of CAA 2001, would not be) materially different from those in |
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the pre-existing heads of agreement. |
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(8) | Sub-paragraphs (4) and (5) have effect with the substitution of “2009” for |
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“2007” if the additional conditions in paragraph 18 are met. |
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Extended time limit: the additional conditions |
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18 (1) | The additional conditions mentioned in paragraph 17(8) are as follows. |
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(2) | Condition A is that the commencement of the term of the lease is before 1st |
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(3) | Condition B is that, at the latest, the commencement of the term of the lease |
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is as soon as is reasonably practicable after construction of the asset is |
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(4) | Condition C is that construction of the asset proceeded continuously on and |
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(5) | Condition D is that construction of the asset proceeded at the normal pace |
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for an asset of its type. |
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| For this purpose, “normal pace” is the pace required to construct the asset in |
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a reasonable time without delays or interruptions and consistent with |
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normal business practice. |
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(6) | This paragraph is supplemented by paragraph 19. |
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Events beyond the control of the parties etc |
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19 (1) | Condition B, C or D in paragraph 18 is not failed by reason only of breaches |
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due to events that meet the conditions in sub-paragraph (2). |
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(2) | The conditions are that— |
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(a) | the event is abnormal or unusual, |
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(b) | the event is unforeseen, and could not reasonably have been |
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foreseen, at the date when the main contract for the construction of |
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the leased asset is entered into, |
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(c) | the event is beyond the control of each of the principal parties, |
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(d) | as respects the Condition in question, the consequences of the event |
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could not have been avoided by the exercise of all due care, or the |
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taking of all reasonable steps, by the principal parties or any of them. |
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(3) | In this paragraph “the principal parties” are— |
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(c) | the main constructor (see the definition in paragraph 27). |
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Pre-existing heads of agreement relating to two or more assets |
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20 (1) | This paragraph has effect for the purposes of this Part in any case where the |
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pre-existing heads of agreement relates to two or more assets. |
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(2) | The treatment of any of the assets varies according to whether the asset— |
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(a) | is for use individually (see sub-paragraph (3)), or |
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(b) | is a constituent asset of a combined asset (see sub-paragraph (4)). |
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(3) | Where any of the assets is for use individually, this Part has effect in relation |
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to that asset separately, as if it were the subject of— |
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(a) | its own separate pre-existing heads of agreement, and |
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(b) | if there is a finalised lease, its own separate finalised lease. |
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| See sub-paragraph (5) for the method of determining the terms. |
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(4) | Where any of the assets are constituent assets of a combined asset— |
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(a) | the combined asset is to be regarded as a single asset, and |
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(b) | the constituent assets are to be regarded as if they were instead |
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component parts of that single asset, |
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| and sub-paragraph (3) applies accordingly. |
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(5) | For the purposes of sub-paragraph (3), the principles in sections 70L and |
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section 70M of CAA 2001 are to be applied, with any necessary |
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modifications, for the purpose of determining the terms of— |
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(a) | the deemed separate pre-existing heads of agreement, and |
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(b) | the deemed separate finalised lease (if any). |
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Expenditure incurred before passing of this Act where lease is not an excepted lease |
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21 (1) | This paragraph applies where the following conditions are met— |
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(a) | a person incurs expenditure on the provision of plant or machinery |
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for leasing under a long funding lease, |
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(b) | some or all of that expenditure was incurred before the day on which |
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(c) | the long funding lease is not an excepted lease, |
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(d) | before 21st July 2005 there was a pre-existing heads of agreement in |
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the case of the long funding lease. |
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(a) | “the old expenditure” means so much of the expenditure as is |
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expenditure incurred before the day on which this Act is passed, and |
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(b) | “the new expenditure” means so much of the expenditure as is |
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expenditure incurred on or after that day. |
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(3) | Treat the old expenditure— |
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(a) | as if it had been incurred on the provision of a separate asset for |
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leasing under a separate long funding lease, and |
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(b) | as if that separate long funding lease were an excepted lease. |
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(4) | Treat the new expenditure as if it had been incurred on the provision of a |
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separate asset for leasing under a separate long funding lease in relation to |
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which the amendments made by this Schedule have effect. |
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| That is without prejudice to the application of any provisions of this Part |
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which treat that deemed separate long funding lease as if it were two or |
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(5) | The rentals under the actual long funding lease are to be apportioned |
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between the two deemed leases in such manner as is just and reasonable. |
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(6) | This paragraph has effect for the purpose of determining liability to income |
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tax or corporation tax in the case of any person who is or has been the lessor |
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or the lessee under the actual long funding lease. |
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(7) | Paragraph 22 has effect for determining when an amount of expenditure is |
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to be treated for the purposes of this paragraph as incurred by the person |
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mentioned in sub-paragraph (1). |
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When expenditure is incurred for the purposes of paragraph 21 |
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22 (1) | This paragraph has effect for determining, for the purposes of paragraph 21, |
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when an amount of expenditure is to be treated as incurred by the person |
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mentioned in sub-paragraph (1) of that paragraph. |
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(2) | The general rule is that an amount of expenditure is to be treated as incurred |
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as soon as there is an unconditional obligation to pay it. |
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(3) | The general rule applies even if the whole or a part of the expenditure is not |
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required to be paid until a later date. |
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(4) | There are the following exceptions to the general rule. |
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(5) | If, under an agreement,— |
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(a) | an unconditional obligation to pay an amount of expenditure comes |
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into being as a result of the giving of a certificate or any other event, |
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(b) | the giving of the certificate, or other event, occurs before the day that |
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falls one month after the passing of this Act, |
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| the expenditure is to be treated as incurred on the day before the passing of |
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(6) | If, under an agreement,— |
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(a) | there is an unconditional obligation to pay an amount of expenditure |
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on a date earlier than accords with normal commercial usage, and |
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(b) | the sole or main benefit which might have been expected to be |
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obtained thereby is that the amount would be treated, under the |
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general rule, as incurred at an earlier time, |
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| the amount is to be treated as incurred on the date on or before which it is |
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(7) | If the terms of an agreement are varied on or after 22nd March 2006 with |
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respect to the times for payment and— |
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(a) | apart from the variation, an unconditional obligation to pay an |
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amount of expenditure would have come into being on or after the |
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day on which this Act is passed, but |
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(b) | as a result of the variation, the unconditional obligation to pay the |
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amount comes into being before that day, |
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| the amount is to be treated as incurred on the date on which it would have |
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been treated as incurred apart from the variation. |
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(8) | Sub-paragraph (7) does not apply if the long funding lease mentioned in |
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paragraph 21 was finalised before 22nd March 2006. |
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When a lease is “finalised” |
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23 (1) | For the purposes of this Part, a lease is “finalised” on the earliest day on |
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which the following conditions are met. |
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(2) | Condition 1 is that there is a contract in writing for the lease between the |
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(3) | Condition 2 is that either— |
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(a) | the contract is unconditional, or |
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(b) | if it is conditional, the conditions have been met. |
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(4) | Condition 3 is that no terms remain to be agreed. |
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When an asset is “under construction” |
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24 (1) | An asset is “under construction” at any time in the period which— |
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(a) | begins when construction of the asset begins, and |
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(b) | ends when construction of the asset is completed. |
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(2) | An asset consisting of two or more component parts is to be taken to be |
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under construction at any time after the start of construction of any of those |
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component parts which meets the condition in subsection (3). |
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(3) | The condition is that the component part has been identified as a component |
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part of the particular asset before construction of the component part begins. |
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(4) | Sub-paragraphs (1) and (2) are subject to sub-paragraph (5). |
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(5) | The leased asset is not to be regarded as under construction at any time after |
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the commencement of the term of the lease. |
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(6) | This paragraph has effect for the purposes of this Part. |
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Combined assets and constituent assets |
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25 (1) | A “combined asset” is an asset which meets the conditions in sub-paragraph |
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(2) | The conditions are that— |
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(a) | the asset is for use individually, |
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(b) | it consists of two or more items of plant or machinery (“constituent |
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(c) | each of the constituent assets is constructed with a view to its use in |
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conjunction with the others as a single asset (namely, the combined |
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(3) | Plant or machinery that can be used individually is not a constituent asset |
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(a) | it is one of a number of assets of the same or a similar description, |
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(b) | each of those assets is intended for use individually, and |
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(c) | the use individually of those assets is to be co-ordinated to any |
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(4) | This paragraph has effect for the purposes of this Part. |
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26 (1) | This paragraph applies in any case where there is a mixed lease (see section |
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(2) | In any such case, determine whether the mixed lease is an excepted lease. |
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(3) | If the mixed lease is an excepted lease, section 70L of CAA 2001 and the |
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amendments made by this Schedule accordingly do not have effect in |
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(4) | If the mixed lease is not an excepted lease, then apply sections 70L and 70M |
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of CAA 2001 and determine separately in the case of each derived lease |
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whether that derived lease is an excepted lease. |
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Interpretation of this Part |
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“combined asset” is to be construed in accordance with paragraph 25; |
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“constituent asset” is to be construed in accordance with paragraph 25; |
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“finalise”, in relation to a lease, is to be construed in accordance with |
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(a) | a plant or machinery lease, and |
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| 40 |
and “lessor”, “lessee” and other related expressions are to be |
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|
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“the lessee’s side” means any of the following— |
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(b) | a person who controls (or is to control) the lessee, |
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(c) | any two or more persons who together control (or are to |
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and for this purpose “control” has the meaning given by section 840 |
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“the lessor’s side” means any of the following— |
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(b) | a person who controls (or is to control) the lessor, |
| 10 |
(c) | any two or more persons who together control (or are to |
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and for this purpose “control” has the meaning given by section 840 |
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“the main constructor” means the contractor under the main contract |
| 15 |
for the construction of the plant or machinery; |
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“pre-existing heads of agreement” is to be construed in accordance with |
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“the principal terms”, in relation to a lease, are the following— |
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(a) | the identity of the lessee; |
| 20 |
(b) | the identity or description of the asset to be leased; |
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(c) | particulars, or a description, of the rentals payable under the |
| |
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(d) | particulars, or a description, of the term of the lease; |
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“qualifying activity” has the same meaning as in Part 2 of CAA 2001; |
| 25 |
“under construction”, in the case of an asset, is to be construed in |
| |
accordance with paragraph 24. |
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(2) | Chapter 6A of Part 2 of CAA 2001 (interpretation of that Part so far as |
| |
relating to long funding leases) also applies for the purposes of this Part. |
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| 30 |
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Leases of plant or machinery: miscellaneous amendments |
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Income and Corporation Taxes Act 1988 |
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Petroleum extraction activities: sale and leaseback |
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1 (1) | Section 494AA of ICTA is amended as follows. |
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(2) | In subsection (2), at the end of paragraph (a) insert “or”. |
| 35 |
(3) | At the end of subsection (2) insert— |
| |
“(c) | falls, if the case is one where the lease is a long funding |
| |
operating lease, to be deductible in computing the profits of |
| |
the lessee for the purposes of corporation tax (after first |
| |
making against any such expenditure any reductions falling |
| 40 |
to be made by virtue of section 502K).”. |
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