Finance (No.2) Bill

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Session 2005 - 06
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Finance (No.2) Bill

Finance (No.2) Bill
Schedule 9 — Leases of plant or machinery: miscellaneous amendments
260

Consequences of paragraph 91A(2) ceasing to have effect
91F   (1)
This paragraph applies if sub-paragraph (2) of paragraph 91A
ceases to have effect in relation to a lease (the “existing lease”)
because one or more of the conditions in sub-paragraph (3) of that
paragraph cease to be met.
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      (2)
In any such case it is to be assumed for tax purposes that—
(a)
the existing lease terminates at the time of the cessation;
(b)
another lease (the “new lease”) is entered into immediately
after the cessation;
(c)
the term of the new lease is the portion of the term of the
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existing lease that remains unexpired at the time of the
cessation;
(d)
the date on which the cessation occurs is the date of both—
(i)
the inception of the new lease, and
(ii)
the commencement of the term of the new lease.
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      (3)
Where this paragraph applies, sub-section (4) of section 70X of the
Capital Allowances Act 2001 (transfers, assignments etc by lessee)
does not.
      (4)
For the purposes of this paragraph, the following expressions
have the meaning given in Chapter 6A of Part 2 of the Capital
20
Allowances Act 2001 (interpretation of provisions about long
funding leases)—
“commencement”, in relation to the term of a lease;
“inception”, in relation to a lease;
“term”, in relation to a lease;
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“terminate”.”.
      (4)
In paragraph 93 (certificates required to support claim by lessor), in sub-
paragraph (1)(b) after “in relation to the lease” insert “and, if the lease is one
that would (apart from paragraph 91A) fall to be regarded as a long funding
lease for the purposes of Part 2 of the Capital Allowances Act 2001, that
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paragraph 91A(2) has effect in relation to the lease.”
      (5)
Paragraph 15 of Schedule 8 (commencement) also has effect in relation to the
amendments made by this paragraph.
Capital Allowances Act 2001
Withdrawal of first year allowances for lessors of certain plant or machinery
35
11    (1)
Section 46 of CAA 2001 (general exclusions applying to certain sections) is
amended as follows.
      (2)
For subsection (5) (exception of sections 45A, 45D, 45E and 45H from general
exclusion 6 (leasing)) substitute—
“(5)
General exclusion 6 does not prevent expenditure being first-year
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qualifying expenditure under any of the following provisions—
section 45A, if the condition in subsection (6) is met,
section 45D,
section 45H, if the condition in subsection (6) is met.”

Finance (No.2) Bill
Schedule 9 — Leases of plant or machinery: miscellaneous amendments
261

(6)
The condition is that the plant or machinery is provided for leasing
under an excluded lease of background plant or machinery for a
building, within the meaning given by section 70R.”.
      (3)
The amendment made by this paragraph has effect in relation to expenditure
incurred on or after 1st April 2006.
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Plant or machinery treated as owned by person entitled to benefit of contract etc
12    (1)
Section 67 of CAA 2001 is amended as follows.
      (2)
After “qualifying activity”, in each place where those words occur in the
section, insert “or corresponding overseas activity”.
      (3)
In subsection (2), insert at the end—
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“This subsection has effect subject to, and in accordance with,
subsections (2A) to (2C).”.
      (4)
After subsection (2) insert—
“(2A)
If the contract is one which, in accordance with generally accepted
accounting practice, falls (or would fall) to be treated as a lease,
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subsection (2B) applies.
(2B)
Where that is the case, the plant or machinery is to be treated under
subsection (2) as owned by the person at any time only if the contract
falls (or would fall) to be treated in accordance with generally
accepted accounting practice as a finance lease.
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(2C)
Where at any time the plant or machinery—
(a)
is not treated under subsection (2) as owned by the person,
but
(b)
would be treated under that subsection as owned by the
person, but for subsection (2B),
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the plant or machinery is nevertheless to be treated under subsection
(2) as not owned by any other person at that time.”.
      (5)
Renumber subsection (5) as subsection (7).
      (6)
Before that subsection, as so renumbered, insert—
“(6)
If—
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(a)
a person enters into two or more agreements, and
(b)
those agreements are such that, if they together constituted a
single contract, the condition in subsection (1)(b) would be
met in relation to that person and that contract,

the agreements are to be treated for the purposes of this section as
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parts of a single contract.

In this subsection, any reference to an agreement includes a reference
to an undertaking, whether or not legally enforceable.”.
      (7)
At the end of the section insert—
“(8)
In this section “corresponding overseas activity” means an activity
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that would be a qualifying activity if the person carrying it on were
resident in the United Kingdom.”.

Finance (No.2) Bill
Schedule 9 — Leases of plant or machinery: miscellaneous amendments
262

      (8)
The amendments made by this paragraph have effect in relation to contracts
that are finalised (within the meaning of Part 4 of Schedule 8) on or after 1st
April 2006.
Phasing out of overseas leasing rules
13    (1)
Section 105 of CAA 2001 (basic terms: “leasing”, “overseas leasing” etc) is
5
amended as follows.
      (2)
After subsection (2) (“overseas leasing”) insert—
   “(2A)
In determining whether plant or machinery is used for overseas
leasing, no account shall be taken of any lease finalised, within the
meaning of Part 4 of Schedule 8 to the Finance Act 2006, on or after
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1st April 2006.”.
Anti-avoidance: meaning of “finance lease”
14    (1)
Section 219 of CAA 2001 (meaning of “finance lease” in Chapter 17 of Part 2)
is amended as follows.
      (2)
In subsection (1)(b), after sub-paragraph (ii) insert—
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“and which are not a long funding lease in the case of the lessor.”.
      (3)
Paragraph 15 of Schedule 8 (commencement) also has effect in relation to the
amendment made by this paragraph.
Capital allowances: allocation of expenditure to a chargeable period
15    (1)
Section 220 of CAA 2001 is amended as follows.
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      (2)
Before subsection (1) insert—
“(A1)
Subsection (1) applies to a company for a chargeable period if—
(a)
at the end of the ICTA period of account which is the basis
period for the chargeable period, the company is a member of
a group, and
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(b)
the last day of that ICTA period of account is not also the last
day of an ICTA period of account of the principal company of
the group.”.
      (3)
In subsection (1)—
(a)
for “a person” substitute “the company”,
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(b)
for “a chargeable period” substitute “the chargeable period”,
(c)
after “under a finance lease” insert “or under a qualifying operating
lease (see subsection (4))”, and
(d)
for “person’s”, in both places, substitute “company’s”.
      (4)
After subsection (2) insert—
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“(3)
The following provisions have effect for the interpretation of this
section.
(4)
A “qualifying operating lease” is a plant or machinery lease that
meets the following conditions—
(a)
it is not a finance lease,
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(b)
it is a funding lease,

Finance (No.2) Bill
Schedule 9 — Leases of plant or machinery: miscellaneous amendments
263

(c)
its term is longer than 4 years but not longer than 5 years.
(5)
An ICTA period of account is the basis period for a chargeable period
if the chargeable period coincides with, or falls within, the ICTA
period of account.
(6)
An “ICTA period of account” is a period of account as defined in
5
section 832(1) of ICTA.
(7)
The provisions of section 170(3) to (6) of TCGA 1992 apply to
determine for the purposes of this section—
(a)
whether a company is member of a group, and
(b)
which company is the principal company of the group.
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(8)
But, in applying those provisions for the purposes of this section, a
company (“the subsidiary company”) that does not have ordinary
share capital is to be treated as being a qualifying 75% subsidiary of
another company (“the parent company”) if the parent company—
(a)
has control of the subsidiary company, within the meaning of
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section 840 of ICTA, and
(b)
is beneficially entitled to the appropriate proportion of
profits and assets.
(9)
The parent company is beneficially entitled to the appropriate
proportion of profits and assets if (and only if) it—
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(a)
is beneficially entitled to at least 75% of any profits available
for distribution to equity holders of the subsidiary company,
and
(b)
would be beneficially entitled to at least 75% of any assets of
the subsidiary company available for distribution to its
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equity holders on a winding-up.
(10)
The provisions of Schedule 18 to ICTA (equity holders and profits or
assets etc) also apply for the purposes of this section.
(11)
In this section, the following expressions have the same meaning as
in Chapter 6A of Part 2 (interpretation of provisions about long
30
funding leases)—
“funding lease”,
“plant or machinery lease”,
“term”, in relation to a lease.”.
      (5)
In consequence of the amendments made by this section, the italic cross-
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heading preceding section 219 becomes “Finance leases and certain
operating leases”.
      (6)
The amendments made by this paragraph have effect in relation to
expenditure incurred on or after 1st April 2006.
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