Finance (No.2) Bill

House of Commons

Session 2005 - 06
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Other Bills before Parliament

Finance (No.2) Bill

Finance (No.2) Bill
Schedule 10 — Sale etc of lessor companies etc
Part 2 — Leasing business carried on by a company alone
264

Schedule 10
Section 82

Sale etc of lessor companies etc
Part 1
Introduction
Contents of Schedule
5
1     (1)
This Schedule makes provision for corporation tax purposes in relation to
any company which is within the charge to corporation tax in respect of a
business of leasing plant or machinery (within the meaning of Part 2 or 3).
      (2)
Part 2 deals with the case of a qualifying change of ownership in relation to
the company where it carries on the business otherwise than in partnership.
10
      (3)
Part 3 deals with—
(a)
the case of a qualifying change in the company’s interest in the
business where it carries on the business in partnership with other
persons, and
(b)
the case of a qualifying change of ownership in relation to any such
15
company.
      (4)
Part 4 contains an anti-avoidance provision and other supplementary
provisions.
Commencement
2
This Schedule has effect in relation to—
20
(a)
any qualifying change of ownership in relation to a company which
occurs on or after 5th December 2005, and
(b)
any qualifying change in a company’s interest in a business which
occurs on or after that date.
Part 2
25
Leasing business carried on by a company alone
Income and matching expense in different accounting periods
3     (1)
This paragraph applies for corporation tax purposes if—
(a)
on any day (“the relevant day”) a company carries on a business of
leasing plant or machinery otherwise than in partnership (see
30
paragraphs 6 to 8),
(b)
the company is within the charge to corporation tax in respect of the
business, and
(c)
there is a qualifying change of ownership in relation to the company
on the relevant day (see paragraphs 10 to 13).
35
      (2)
On the relevant day—
(a)
the company is treated as receiving an amount of income, and
(b)
the accounting period of the company ends.
      (3)
The income—

Finance (No.2) Bill
Schedule 10 — Sale etc of lessor companies etc
Part 2 — Leasing business carried on by a company alone
265

(a)
is treated as a receipt of the business, and
(b)
is brought into account in calculating for corporation tax purposes
the profits of the business for that accounting period.
      (4)
On the day following the relevant day—
(a)
the company is treated as incurring an expense, and
5
(b)
a new accounting period of the company begins.
      (5)
The expense—
(a)
is treated as an expense of the business, and
(b)
is allowed as a deduction in calculating for corporation tax purposes
the profits of the business for that new accounting period.
10
      (6)
This paragraph is supplemented by paragraphs 4 and 5.
Amount of income and expense
4     (1)
The amount of the income is calculated in accordance with paragraphs 16 to
21.
      (2)
The amount of the expense is the same as the amount of the income.
15
No carry back of the expense
5     (1)
This paragraph applies if the business carried on by the company is a trade
the profits of which are chargeable to corporation tax under Case I of
Schedule D.
      (2)
No relief is to be given by virtue of section 393A(1)(b) of ICTA (set off of
20
trading losses against profits of earlier accounting periods) in respect of so
much of any loss as derives from the expense.
      (3)
For the purpose of determining how much of a loss derives from the
expense, the loss is to be calculated on the basis that the expense is the final
amount to be deducted.
25
Meaning of “business of leasing plant or machinery”
6     (1)
This paragraph determines for the purposes of this Part of this Schedule
whether, on any day (“the relevant day”), a company (“the relevant
company”) carries on a business of leasing plant or machinery.
      (2)
A business carried on by the relevant company is a business of leasing plant
30
or machinery on the relevant day if condition A or B is met.
      (3)
Condition A is that at least half of the accounting value of the plant or
machinery owned by the relevant company on the relevant day relates to
qualifying leased plant or machinery.
      (4)
Condition B is that at least half of the relevant company’s income in the
35
period of 12 months ending with the relevant day derives from qualifying
leased plant or machinery.
      (5)
For the purposes of this Part of this Schedule, plant or machinery is
“qualifying leased plant or machinery”, in relation to any company, if—

Finance (No.2) Bill
Schedule 10 — Sale etc of lessor companies etc
Part 2 — Leasing business carried on by a company alone
266

(a)
expenditure is incurred (or treated as incurred) by the company on
the provision of the plant or machinery wholly or partly for the
purposes of the business,
(b)
the company is (or has at any time been) entitled, on the relevant
assumptions, to an allowance under Part 2 of CAA 2001 in respect of
5
that expenditure, and
(c)
at any time in the period of 12 months ending with the relevant day
the plant or machinery has been subject to a plant or machinery lease
which is not an excluded lease of background plant or machinery for
a building (see paragraph 41).
10
      (6)
“The relevant assumptions” are—
(a)
that sections 34A and 70A of CAA 2001 (lessees, and not lessors,
under long funding leases to be entitled to capital allowances) are
ignored, and
(b)
that any claim that could be made for an allowance under Part 2 of
15
that Act is made.
Provision for the purposes of condition A in paragraph 6
7     (1)
This paragraph applies for the purposes of condition A in paragraph 6.
      (2)
The accounting value of the plant or machinery owned by the relevant
company on the relevant day is taken to be the amount found by adding
20
together the following amounts.
      (3)
The amounts are—
(a)
the amounts (if any) shown in the appropriate balance sheet of the
relevant company in respect of plant or machinery which it owns at
the start of the relevant day, and
25
(b)
the amounts (if any) shown in the appropriate balance sheet of each
associated company in respect of plant or machinery which it
transfers to the relevant company on the relevant day,

and the reference here to an associated company is to a company which is an
associated company of the relevant company on the relevant day (as to
30
which, see paragraph 9).
      (4)
For this purpose the amounts shown in the appropriate balance sheet of any
company in respect of any plant or machinery are—
(a)
the amounts shown in that balance sheet as the net book value (or
carrying amount) in respect of the plant or machinery, and
35
(b)
the amounts shown in that balance sheet as the net investment in
respect of finance leases of the plant or machinery.
      (5)
If—
(a)
any of the plant or machinery is a fixture in any land, and
(b)
the amount which falls (or would fall) to be shown in an appropriate
40
balance sheet as the net book value (or carrying amount) of the land
includes (or would include) an amount in respect of the fixture,

the amount of the net book value (or carrying amount) in respect of the
fixture is determined on a just and reasonable basis.
      (6)
If—
45
(a)
any of the plant or machinery is subject to a finance lease, and

Finance (No.2) Bill
Schedule 10 — Sale etc of lessor companies etc
Part 2 — Leasing business carried on by a company alone
267

(b)
any land or other asset which is not plant or machinery is subject to
that lease,

the amount of the net investment in respect of the finance lease of that plant
or machinery is determined on a just and reasonable basis.
      (7)
In this paragraph any reference to any amount shown in the appropriate
5
balance sheet of a company is to the amount which, on the following
assumptions, falls (or would fall) to be shown in a balance sheet of the
company.
      (8)
The assumptions are—
(a)
that the balance sheet is drawn up as at the start of the relevant day
10
in accordance with generally accepted accounting practice, and
(b)
that, if the company acquires any plant or machinery directly or
indirectly from a person who is connected with the company, the
plant or machinery had been acquired for an amount equal to its
market value as at the relevant day.
15
      (9)
Sub-paragraph (8)(b) does not apply if the relevant day falls before 22nd
March 2006.
Provision for the purposes of condition B in paragraph 6
8     (1)
This paragraph applies for the purposes of condition B in paragraph 6.
      (2)
The reference to the relevant company’s income is to its income as calculated
20
for corporation tax purposes.
      (3)
Any apportionment necessary to determine the amount of the relevant
company’s income attributable to the period of 12 months ending with the
relevant day is to be made on a time basis.
      (4)
But—
25
(a)
that basis does not apply if it would work in an unjust or
unreasonable manner in relation to any person, and
(b)
in that case the apportionment is to be made instead on a just and
reasonable basis.
      (5)
The proportion of the income that derives from qualifying leased plant or
30
machinery is to be determined on a just and reasonable basis.
Meaning of “associated company”
9     (1)
A company is an “associated company” of another company on any day if,
at the start of that day,—
(a)
one of the two has control of the other, or
35
(b)
both are under the control of the same person or persons,

and for this purpose “control” is to be read in accordance with section 416 of
ICTA.
      (2)
If, at the start of any day, a company (“the consortium company”) is owned
by a consortium or is a qualifying 90% subsidiary of a company owned by a
40
consortium, references to an associated company of the consortium
company on that day include—
(a)
any relevant member of the consortium on that day, and

Finance (No.2) Bill
Schedule 10 — Sale etc of lessor companies etc
Part 2 — Leasing business carried on by a company alone
268

(b)
any company which is an associated company of any relevant
member of the consortium on that day.
      (3)
For this purpose a member of the consortium is a “relevant” member on any
day if—
(a)
it is a member of the consortium at the start of the day,
5
(b)
one or more qualifying changes of ownership occur in relation to the
consortium company on that day, and
(c)
any of those changes occur in a case where the member of the
consortium is regarded as “company E” for the purposes of
paragraph 12 (consortium relationships).
10
      (4)
This paragraph applies for the purposes of this Part of this Schedule.
Meaning of “a qualifying change of ownership” in relation to a company
10    (1)
For the purposes of this Schedule, there is a qualifying change of ownership
in relation to a company (“company A”) on any day if there is a relevant
change in the relationship on that day between—
15
(a)
company A, and
(b)
a principal company of company A,

but see paragraph 13 for an exception (no qualifying change of ownership in
the case of certain intra-group reorganisations).
      (2)
For the purposes of this Schedule, there is a relevant change in the
20
relationship between company A and a principal company of company A on
any day in any of the circumstances in paragraphs 11 and 12 (qualifying 75%
subsidiaries and consortium relationships).
Qualifying 75% subsidiaries
11    (1)
A company (“company B”) is a principal company of company A if—
25
(a)
company A is a qualifying 75% subsidiary of company B, and
(b)
company B is not a qualifying 75% subsidiary of another company.
      (2)
There is a relevant change in the relationship between company A and
company B (as a principal company) on any day if company A ceases to be
a qualifying 75% subsidiary of company B on that day.
30
      (3)
A company (“company C”) is a principal company of company A if—
(a)
company A is a qualifying 75% subsidiary of company B,
(b)
company B is a qualifying 75% subsidiary of company C, and
(c)
company C is not a qualifying 75% subsidiary of another company.
      (4)
There is a relevant change in the relationship between company A and
35
company C (as a principal company) on any day if—
(a)
company A ceases to be a qualifying 75% subsidiary of company B
on that day, or
(b)
company B ceases to be a qualifying 75% subsidiary of company C
on that day.
40
      (5)
If company C is a qualifying 75% subsidiary of another company (“company
D”), company D is a principal company of company A unless company D is
a qualifying 75% subsidiary of another company, and so on.

Finance (No.2) Bill
Schedule 10 — Sale etc of lessor companies etc
Part 2 — Leasing business carried on by a company alone
269

      (6)
Accordingly, there is a relevant change in the relationship between company
A and a principal company of company A on any day if—
(a)
in determining which company is a principal company, regard is had
to any company which is a qualifying 75% subsidiary of another, and
(b)
that company ceases to be a qualifying 75% subsidiary of the other
5
on that day.
      (7)
This paragraph is supplemented by paragraph 15 (meaning of a qualifying
75% subsidiary).
Consortium relationships
12    (1)
A company (“company E”) is a principal company of company A if—
10
(a)
company A is owned by a consortium of which company E is a
member, or
(b)
company A is a qualifying 90% subsidiary of a company owned by a
consortium of which company E is a member,

and company E is not a qualifying 75% subsidiary of another company.
15
      (2)
There is a relevant change in the relationship between company A and
company E (as a principal company) on any day if the relevant fraction at the
end of the day is less than the relevant fraction at the start of the day.
      (3)
In this paragraph “the relevant fraction” is whichever is the lowest of the
following percentages—
20
(a)
the percentage of the ordinary share capital of company A that is
beneficially owned by company E,
(b)
the percentage to which company E is beneficially entitled of any
profits available for distribution to equity holders of company A,
(c)
the percentage to which company E would be beneficially entitled of
25
any assets of company A available for distribution to its equity
holders on a winding-up.
      (4)
In any case where company A is a qualifying 90% subsidiary of a company,
sub-paragraph (3) is to be read as if for references to company A there were
substituted references to that company.
30
      (5)
A company (“company F”) is a principal company of company A if—
(a)
company A is owned by a consortium of which company E is a
member, or
(b)
company A is a qualifying 90% subsidiary of a company owned by a
consortium of which company E is a member,
35

and company E is a qualifying 75% subsidiary of company F, but company
F is not a qualifying 75% subsidiary of another company.
      (6)
There is a relevant change in the relationship between company A and
company F (as a principal company) on any day if—
(a)
the relevant fraction at the end of the day is less than the relevant
40
fraction at the start of the day, or
(b)
company E ceases to be a qualifying 75% subsidiary of company F on
that day.
      (7)
If company F is a qualifying 75% subsidiary of another company (“company
G”), company G is a principal company of company A unless company G is
45
a qualifying 75% subsidiary of another company, and so on.

Finance (No.2) Bill
Schedule 10 — Sale etc of lessor companies etc
Part 2 — Leasing business carried on by a company alone
270

      (8)
Accordingly, there is a relevant change in the relationship between company
A and a principal company of company A on any day if—
(a)
in determining which company is a principal company, regard is had
to any company which is a qualifying 75% subsidiary of another, and
(b)
that company ceases to be a qualifying 75% subsidiary of the other
5
on that day,

(as well as if the relevant fraction at the end of the day is less than the
relevant fraction at the start of the day).
      (9)
This paragraph is supplemented by—
(a)
paragraph 14 (meaning of consortium member etc), and
10
(b)
paragraph 15 (meaning of a qualifying 75% or 90% subsidiary).
No qualifying change of ownership in the case of certain intra-group reorganisations
13    (1)
This paragraph applies if—
(a)
a relevant change in the relationship between a company (“company
A”) and a principal company of company A occurs on any day,
15
(b)
that change occurs by reference to company A or any other company
ceasing to be a qualifying 75% subsidiary on that day, and
(c)
company A, and every company by reference to which that change
occurs, are qualifying 75% subsidiaries of the principal company
concerned at the start and end of that day.
20
      (2)
For the purposes of this Schedule, there is no qualifying change of
ownership in relation to company A on that day as a result of that change in
the relationship.
Meaning of “company owned by a consortium” etc
14    (1)
A company is owned by a consortium if—
25
(a)
it is not a qualifying 75% subsidiary of any company,
(b)
75% or more of its ordinary share capital is beneficially owned
between them by other companies, and
(c)
none of those other companies owns less than 5% of that capital.
      (2)
Those other companies are the members of the consortium.
30
      (3)
This paragraph applies for the purposes of this Schedule.
Meaning of qualifying 75% or 90% subsidiary etc
15    (1)
In this Schedule a company (“the subsidiary company”) is a qualifying 75%
subsidiary of another company (“the parent company”) if—
(a)
the subsidiary company is a 75% subsidiary of the parent company
35
within the meaning of section 838 of ICTA (if the subsidiary
company has ordinary share capital), or
(b)
the parent company has control of the subsidiary company within
the meaning of section 840 of ICTA (if the subsidiary company does
not have ordinary share capital),
40

and the parent company is beneficially entitled to the appropriate
proportion of profits and assets.