Finance (No.2) Bill

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Session 2005 - 06
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Finance (No.2) Bill

Finance (No.2) Bill
Schedule 8 — Long funding leases of plant or machinery
Part 1 — Capital allowances
200

Schedule 8
Section 81

Long funding leases of plant or machinery
Part 1
Capital allowances
Introductory
5
1
CAA 2001 is amended as follows.
Use for other qualifying activity of plant or machinery previously used for long funding leasing
2
After section 13 (use for qualifying activity of plant or machinery provided
for other purposes) insert—
“13A
Use for other purposes of plant or machinery previously used for long
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funding leasing
(1)
This section applies if a person who has been using plant or
machinery for the purpose of leasing it under a long funding lease
(see Chapter 6A)—
(a)
ceases to use the plant or machinery for that purpose without
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ceasing to use it for the purposes of a qualifying activity
carried on by him, and
(b)
on the date of the cessation, owns the plant or machinery as a
result of having incurred capital expenditure on its provision
for the purposes of the qualifying activity.
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(2)
The person is to be treated—
(a)
as having incurred capital expenditure (“notional
expenditure”) on the provision of the plant or machinery for
the purposes of the qualifying activity on the day after the
cessation,
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(b)
as owning the plant or machinery as a result of having
incurred that expenditure, and
(c)
as if the plant or machinery on and after that day were
different plant or machinery from the plant or machinery
before that day.
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(3)
The amount of the notional expenditure is an amount equal to the
termination amount, determined in accordance with section 70YG, in
the case of the long funding lease under which the plant or
machinery was last leased before the cessation.”.
Expenditure on plant or machinery for long funding leasing not to be qualifying expenditure
35
3
After section 34 insert—
“34A
Expenditure on plant or machinery for long funding leasing not
qualifying expenditure
Expenditure is not qualifying expenditure if it is incurred on the
provision of plant or machinery for leasing under a long funding
40
lease (see Chapter 6A).”.

Finance (No.2) Bill
Schedule 8 — Long funding leases of plant or machinery
Part 1 — Capital allowances
201

General exclusions applying to certain sections
4     (1)
Section 46 is amended as follows.
      (2)
In subsection (2) (the general exclusions) in general exclusion 8—
(a)
for “Either” substitute “Any”, and
(b)
after the entry relating to section 13 insert—
5

“section 13A (use for other purposes of plant or machinery
provided for long funding leasing);”.
Commencement of leasing under long funding lease: disposal events and disposal values
5     (1)
Section 61 (disposal events and disposal values) is amended as follows.
      (2)
In subsection (1) (disposal events) after paragraph (e) insert—
10
“(ee)
the plant or machinery begins to be leased under a long
funding lease (see Chapter 6A);”.
      (3)
In subsection (2) (disposal values) in the Table (disposal event, disposal
value) after item 5 insert—

“5A.
Commencement of the term of
An amount equal to that which

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a long funding finance lease of
would fall to be recognised as

the plant or machinery.
the lessor’s net investment in

the lease if accounts were

prepared in accordance with

generally accepted accounting

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practice on the date on which

the lessor’s net investment in

the lease is first recognised in

the books or other financial

records of the lessor.

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5B.
Commencement of the term of
An amount equal to the market

a long funding operating lease
value of the plant or machinery

of the plant or machinery.
at the commencement of the

term of the lease.”.

      (4)
In item 6 in that Table (which refers to the occurrence of an event within
30
items 1 to 5) for “5” substitute “5B”.
Lessee under long funding lease: capital allowances, disposal events and disposal values
6
In Chapter 6 of Part 2 (hire-purchase etc and plant or machinery provided
by lessee) after section 70 insert—
“Lessees under long funding leases
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70A
Entitlement to capital allowances
(1)
This section applies if a person carrying on a qualifying activity
incurs expenditure (whether or not of a capital nature) on the
provision of plant or machinery for the purposes of the qualifying
activity under a long funding lease.
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Finance (No.2) Bill
Schedule 8 — Long funding leases of plant or machinery
Part 1 — Capital allowances
202

(2)
In the application of this Part in the case of that person, the plant or
machinery is to be treated as owned by him at any time when he is
the lessee under the long funding lease.

That is so whether or not the lease also falls to be regarded as a long
funding lease in the application of this Part in the case of the lessor.
5
(3)
The person is to be treated for the purposes of this Part as having
incurred capital expenditure on the provision of the plant or
machinery as follows.
(4)
The capital expenditure is to be treated as incurred at the
commencement of the term of the long funding lease.
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(5)
The amount of the capital expenditure varies, according to whether
the long funding lease is—
(a)
a long funding operating lease (subsection (6)), or
(b)
a long funding finance lease (subsection (7)).
(6)
If the long funding lease is a long funding operating lease, the
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amount of the capital expenditure is to be found in accordance with
section 70B.
(7)
If the long funding lease is a long funding finance lease, the amount
of the capital expenditure is to be found in accordance with section
70C.
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(8)
See Chapter 6A for interpretation of this section.
70B
Long funding operating lease: amount of capital expenditure
(1)
This section applies by virtue of section 70A(6).
(2)
If the long funding lease is a long funding operating lease, the
amount of the capital expenditure is the market value of the plant or
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machinery at the later of—
(a)
the commencement of the term of the lease;
(b)
the date on which the plant or machinery is first brought into
use for the purposes of the qualifying activity.
(3)
This section is to be construed as one with section 70A.
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70C
Long funding finance lease: amount of capital expenditure
(1)
This section has effect by virtue of section 70A(7) for the purpose of
determining the amount of the capital expenditure in the case of a
long funding finance lease.
(2)
If the lease is one which, under generally accepted accounting
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practice, falls (or would fall) to be treated as a loan, this section
applies as if the lease were one which, under generally accepted
accounting practice, fell to be treated as a finance lease.
(3)
The amount of the capital expenditure is the total of—
(a)
commencement PVMLP (see subsection (4)), and
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(b)
if subsection (6) applies, the unrelievable pre-commencement
rentals (“UPR”),

but subject, in a case falling within subsection (7), to the restriction
imposed by subsection (8).

Finance (No.2) Bill
Schedule 8 — Long funding leases of plant or machinery
Part 1 — Capital allowances
203

(4)
Commencement PVMLP is the amount that would fall to be
recognised as the present value, at the appropriate date, of the
minimum lease payments (see section 70YE) if appropriate accounts
were prepared by the person.
(5)
For the purposes of subsection (4)—
5
“appropriate accounts” are accounts prepared in accordance
with generally accepted accounting practice on the date on
which that amount is first recognised in the books or other
financial records of the person;
“the appropriate date” is the later of—
10
(a)
the commencement of the term of the lease;
(b)
the date on which the plant or machinery is first
brought into use for the purposes of the qualifying
activity.
(6)
This subsection applies if—
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(a)
the person has paid rentals under the lease before the
commencement of the term of the lease, and
(b)
in the case of some or all of those rentals, relief otherwise than
by virtue of this subsection—
(i)
is not available, and
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(ii)
if the case is one where the plant or machinery was
not used for the purposes of a qualifying activity in
the period before the commencement of the term of
the lease, would not have been available had the plant
or machinery been used in that period for the
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purposes of a qualifying activity,

and in any such case UPR is the amount of the rentals for which relief
is not, and (in a case falling within paragraph (b)(ii)) would not have
been, so available.
(7)
Subsection (8) applies if the circumstances are such that it would not
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be unreasonable to conclude from them that the purpose, or one of
the main purposes, of entering into—
(a)
the lease,
(b)
a series of transactions of which the lease is one, or
(c)
any of the transactions in such a series,
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is to obtain allowances under this Part in respect of an amount of
capital expenditure that materially exceeds the market value of the
leased asset at the commencement of the term of the lease.
(8)
In any such case, the amount of the capital expenditure described in
subsection (3) is to be restricted to an amount equal to the market
40
value of the asset at the commencement of the term of the lease.
(9)
In this section “relief” means relief by way of—
(a)
an allowance under this Act,
(b)
a deduction in computing profits for the purposes of income
tax or corporation tax,
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(c)
a deduction from total profits or total income for the
purposes of either of those taxes.
(10)
This section is to be construed as one with section 70A.