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 3 — Leasing business carried on by a company in partnership
278

in the pools from the old chargeable period under section 59 of CAA
2001,
(b)
the total amount of unrelieved qualifying expenditure in class pools
for the new chargeable period that would be carried forward in the
pools from the old chargeable period under that section, and
5
(c)
the amount of unrelieved qualifying expenditure in the main pool
for the new chargeable period that would be carried forward in the
pool from the old chargeable period under that section.
      (6)
For the purposes of “TWDV”—
(a)
it is to be assumed that the chargeable period (within the meaning of
10
CAA 2001) of the partnership ends on the relevant day (“the old
chargeable period”) and a new one begins on the following day (“the
new chargeable period”), and
(b)
expenditure incurred by the partnership in acquiring plant or
machinery on the relevant day is to be left out of account unless it is
15
acquired from a qualifying company.
      (7)
In this paragraph “qualifying company” means each of the following—
(a)
the partner company,
(b)
any company which is an associated company of the partner
company on the relevant day,
20
(c)
any other partner company in relation to whose interest in the
business there is a qualifying change on the relevant day,
(d)
any other partner company in relation to which there is a qualifying
change of ownership on the relevant day, and
(e)
any company which is an associated company of any other partner
25
company mentioned in paragraph (c) or (d) on the relevant day.
      (8)
For this purpose “any other partner company” means a company—
(a)
which carries on the business at the start of the relevant day, and
(b)
which is within the charge to corporation tax in respect of the
business.
30
Amount to be nil if basic amount negative
30
If the basic amount given by the formula is a negative amount, the amount
is taken instead to be nil.
Adjustment of basic amount
31    (1)
The amount of the company’s income under paragraph 23 is limited to the
35
appropriate percentage of the basic amount.
      (2)
The appropriate percentage is found by subtracting the company’s relevant
percentage share at the end of the day from its relevant percentage share at
the start of the day.
      (3)
In this paragraph “relevant percentage share” has the same meaning as it has
40
for the purposes of paragraph 27.
Amount of expense
32    (1)
This paragraph applies if, as a result of a qualifying change in a company’s
interest in a business on any day,—

Finance (No.2) Bill
Schedule 10 — Sale etc of lessor companies etc
Part 3 — Leasing business carried on by a company in partnership
279

(a)
the company (“the partner company”) is treated as receiving an
amount of income under paragraph 23 on that day,
(b)
any other company is treated as incurring an expense under that
paragraph on that day,
(c)
the other company’s percentage share in the profits or loss of the
5
business increases at any time on that day, and
(d)
the increase at that time (or any part of the increase at that time) is
wholly attributable to the change in the partner company’s interest
in the business.
      (2)
The amount of the expense of the other company is limited to the
10
appropriate percentage of the amount of the income.
      (3)
The appropriate percentage is the percentage of the other company’s
percentage share in the profits or loss of the business immediately after the
change that is wholly attributable to the change.
      (4)
For the purposes of this paragraph any reference to an increase in the other
15
company’s percentage share in any profits or loss of the business includes
an increase from a nil share (whether as a result of its becoming a partner or
otherwise).
Income and matching expense in different accounting periods
33    (1)
This paragraph applies for corporation tax purposes if—
20
(a)
on any day (“the relevant day”) a company carries on a business of
leasing plant or machinery in partnership with other persons,
(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
25
on the relevant day.
      (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—
30
(a)
is treated as a receipt of the company’s notional business, and
(b)
is brought into account in calculating for corporation tax purposes
the profits of that business for that accounting period.
      (4)
On the day following the relevant day—
(a)
the company is treated as incurring an expense, and
35
(b)
a new accounting period of the company begins.
      (5)
The expense—
(a)
is treated as an expense of the company’s notional business, and
(b)
is allowed as a deduction in calculating for corporation tax purposes
the profits of that business for that new accounting period.
40
      (6)
This paragraph is supplemented by paragraphs 34 and 35.
Amount of income and expense
34    (1)
The amount of the income is calculated in accordance with paragraph 36.

Finance (No.2) Bill
Schedule 10 — Sale etc of lessor companies etc
Part 4 — Miscellaneous
280

      (2)
The amount of the expense is the same as the amount of the income.
No carry back of the expense
35    (1)
This paragraph applies if the notional business carried on by the company is
a trade the profits of which are chargeable to corporation tax under Case I of
Schedule D.
5
      (2)
No relief is to be given by virtue of section 393A(1)(b) of ICTA (set off of
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
10
amount to be deducted.
Amount of the income
36    (1)
This paragraph determines the amount of the income under paragraph 33
when a qualifying change of ownership in relation to a company carrying on
a business of leasing plant or machinery occurs on any day (“the relevant
15
day”).
      (2)
The amount of the income is found by first—
(a)
applying the formula in paragraph 29 to give the basic amount (as if
the company were “the partner company” mentioned in that
paragraph), and
20
(b)
making any adjustment in accordance with any of paragraphs 19 to
21 to the basic amount.
      (3)
The amount is then limited to the appropriate percentage of the amount
given as a result of sub-paragraph (2).
      (4)
If there is no qualifying change in the company’s interest in the business on
25
the relevant day, the appropriate percentage is the percentage share of the
company in the profits or loss of the business on the relevant day.
      (5)
If there is a qualifying change in the company’s interest in the business on
the relevant day, the appropriate percentage is the percentage share of the
company in the profits or loss of the business at the end of the relevant day.
30
Meaning of “profits” etc
37
In this Part of this Schedule “profits” does not include chargeable gains, and
references to “loss” are to be read accordingly.
Part 4
Miscellaneous
35
Anti-avoidance
38    (1)
This paragraph applies if—
(a)
a company is treated as incurring an expense under any provision of
this Schedule,

Finance (No.2) Bill
Schedule 10 — Sale etc of lessor companies etc
Part 4 — Miscellaneous
281

(b)
the expense arises directly or indirectly in consequence of, or
otherwise in connection with, any arrangements, and
(c)
the main purpose, or one of the main purposes, of the arrangements
is to secure that the company is treated as incurring the expense.
      (2)
The following restrictions apply in respect of so much of any loss incurred
5
by the company as derives from the expense (“the restricted part of the
loss”).
      (3)
Apart from by way of set off against any relevant leasing income, relief is not
to be given to the company under any relevant loss relief provision in
respect of the restricted part of the loss.
10
      (4)
If the business carried on by the company is a trade, relief is not to be given
to the company under section 393A(1) of ICTA in respect of the restricted
part of the loss.
      (5)
The restricted part of the loss is not available for set off by way of group
relief in accordance with section 403 of ICTA.
15
      (6)
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.
      (7)
In this paragraph “arrangements” includes any agreement, understanding,
scheme, transaction or series of transactions—
20
(a)
whether or not legally enforceable, and
(b)
whether or not the company is a party to the arrangements.
      (8)
In this paragraph “relevant leasing income” means any income deriving
from any plant or machinery lease—
(a)
which is not an excluded lease of background plant or machinery for
25
a building, and
(b)
which is entered into before the day on which the company is treated
as incurring the expense.
      (9)
In this paragraph “relevant loss relief provision” means any of the following
provisions of ICTA—
30
(a)
section 392A (Schedule A losses),
(b)
section 392B (losses from overseas property businesses),
(c)
section 393 (trade losses),
(d)
section 396 (Case VI losses).
Relief for expense under paragraph 3 or 33 otherwise giving rise to carried forward loss
35
39    (1)
This paragraph applies if—
(a)
there is a qualifying change of ownership in relation to a company on
any day (“the relevant day”),
(b)
on the following day the company is, accordingly, treated under
paragraph 3 or 33 as incurring an expense of a business and an
40
accounting period of the company begins,
(c)
the company makes a loss in that accounting period,
(d)
some or all of that loss would otherwise be carried forward to the
next accounting period of the company (“the subsequent accounting
period”), and
45

Finance (No.2) Bill
Schedule 10 — Sale etc of lessor companies etc
Part 4 — Miscellaneous
282

(e)
the subsequent accounting period starts within the period of 12
months beginning with the relevant day and does not start as a result
of paragraph 3 or 33.
      (2)
So much of the loss (or part of the loss) that would otherwise be so carried
forward as derives from the expense under paragraph 3 or 33 is instead to
5
be treated for corporation tax purposes as an expense.
      (3)
The expense under this paragraph is allowed as a deduction in calculating
for corporation tax purposes the profits of the business for the subsequent
accounting period.
      (4)
For the purpose of determining how much of a loss derives from an expense
10
under paragraph 3 or 33, the loss is to be calculated on the basis that the
expense under that paragraph is the final amount to be deducted.
Relationship of Schedule with section 228K of CAA 2001
40    (1)
This paragraph applies if—
(a)
on any day (“the relevant day”) a company carries on a business of
15
leasing plant or machinery (whether alone or in partnership),
(b)
on the relevant day there is a qualifying change of ownership in
relation to the company or a qualifying change in its interest in the
business,
(c)
on the relevant day the company, or the partnership of which the
20
company is a member, disposes of any relevant plant or machinery
subject to a lease, and
(d)
section 228K of CAA 2001 (disposal of plant or machinery subject to
lease where income retained) applies in relation to the disposal.
      (2)
In such a case—
25
(a)
no person is to be treated as receiving an amount of income, or as
incurring an expense, as a result of any provision of this Schedule,
and
(b)
no accounting period ends or begins as a result of any provision of
this Schedule.
30
      (3)
In this paragraph—
“business of leasing plant or machinery” has the meaning given by Part
2 or (as the case may be) Part 3,
“relevant plant or machinery subject to a lease” has the same meaning
as it has for the purposes of section 228K of CAA 2001 (see section
35
228M).
Definitions for purposes of Schedule
41    (1)
This paragraph applies for the purposes of this Schedule.
      (2)
“Company” means a body corporate.
      (3)
“Excluded lease of background plant or machinery for a building” has the
40
meaning given in Chapter 6A of Part 2 of CAA 2001.
      (4)
“Finance lease”, in the case of any person, means a lease which, under
generally accepted accounting practice, falls or (would fall) to be treated as
a finance lease or loan in the accounts of that person.

Finance (No.2) Bill
Schedule 10 — Sale etc of lessor companies etc
Part 4 — Miscellaneous
283

      (5)
“Fixture”—
(a)
means any plant or machinery that is so installed or otherwise fixed
in or to a building or other description of land as to become, in law,
part of that building or other land, and
(b)
includes any boiler or water-filled radiator installed in a building as
5
part of a space or water heating system.
      (6)
“Plant or machinery” has the same meaning as in Part 2 of CAA 2001.
      (7)
“Plant or machinery lease” has the meaning given in Chapter 6A of that Part.
      (8)
The market value of any plant or machinery at any time is to be determined
on the assumption of a disposal by an absolute owner free from—
10
(a)
all leases (including any agreement or arrangement which is or
includes a plant or machinery lease), and
(b)
other encumbrances.
      (9)
Section 839 of ICTA (connected persons) applies.
Index of definitions
15
42
The following table lists the places where expressions used in this Schedule
are defined or otherwise explained in this Schedule for the purposes of this
Schedule or a Part of this Schedule—

Expression
Provision

associated company (in Part 2)
paragraph 9

20

associated company (in Part 3)
paragraph 26

business of leasing plant or
paragraphs 6 to 8

machinery (in Part 2)

business of leasing plant or
paragraphs 6 to 8 and 25

machinery (in Part 3)

25

company
paragraph 41

company’s percentage share
paragraph 28

in any profits or loss of a

business (in Part 3)

connected persons
paragraph 41

30

consortium and related
paragraph 14

expressions

excluded lease of background
paragraph 41

plant or machinery for a

building

35

profits or assets available for
paragraph 15

distribution to equity holders

(in Part 2)

Finance (No.2) Bill
Schedule 10 — Sale etc of lessor companies etc
Part 4 — Miscellaneous
284

Expression
Provision

finance lease
paragraph 41

fixture
paragraph 41

loss (in Part 3)
paragraph 37

market value (in relation to
paragraph 41

5

plant or machinery)

notional business (in Part 3)
paragraph 23

plant or machinery
paragraph 41

plant or machinery lease
paragraph 41

profits (in Part 3)
paragraph 37

10

qualifying change in a
paragraphs 27 and 28

company’s interest in a

business (in Part 3)

qualifying change of
paragraphs 10 to 13

ownership in relation to a

15

company

qualifying leased plant or
paragraph 6

machinery (in Part 2)

qualifying 75% subsidiary
paragraph 15

qualifying 90% subsidiary
paragraph 15

20

relevant change in the
paragraph 10

relationship between

companies

Consequential amendments
43    (1)
ICTA is amended as follows.
25
      (2)
In section 12 (basis of, and periods for, assessment), at the end insert—
“(9)
This section is subject to Schedule 10 to the Finance Act 2006.”.
      (3)
In section 403 (amounts which may be surrendered by way of group relief),
in subsection (4) (section 403 subject to certain exceptions), at the end insert
“and
30

paragraph 38 of Schedule 10 to the Finance Act 2006 (sale etc of lessor
companies etc: anti-avoidance)”.