|
| |
|
“remaining useful economic life”, in the case of any leased plant |
| |
or machinery, is the period— |
| |
(a) | beginning with the commencement of the term of the |
| |
| |
(b) | ending when the asset is no longer used, and no |
| 5 |
longer likely to be used, by any person for any |
| |
purpose as a fixed asset of a business; |
| |
“short lease” is to be construed in accordance with section 70I; |
| |
“the term”, in relation to a lease, is to be construed in accordance |
| |
with section 70YF (but see also section 70YC(5) (extension, for |
| 10 |
certain purposes, of term of lease that is not a long funding |
| |
| |
“termination”, in relation to a lease,— |
| |
(a) | means the coming to an end of the lease, whether by |
| |
effluxion of time or in any other way, and |
| 15 |
(b) | includes in particular the bringing to an end of the |
| |
lease by any person or by operation of law, |
| |
and related expressions are to be construed accordingly; |
| |
“termination amount” is to be construed in accordance with |
| |
| 20 |
“termination value” is to be construed in accordance with |
| |
| |
(2) | 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 all leases and other encumbrances. |
| 25 |
(3) | In relation to a lease, any reference to plant or machinery includes a |
| |
| |
(4) | Section 839 of ICTA (connected persons) applies. |
| |
(5) | Any necessary apportionments under or by virtue of this Chapter are |
| |
to be made on a just and reasonable basis. |
| 30 |
70YJ | Power to vary the meaning of certain expressions |
| |
(1) | The Treasury may by regulations make provision amending this |
| |
| |
(a) | the meaning of “plant or machinery lease”, or |
| |
(b) | the finance lease test. |
| 35 |
(2) | A statutory instrument containing regulations under this section is |
| |
not to be made unless a draft of the instrument has been laid before, |
| |
and approved by a resolution of, the House of Commons.”. |
| |
Cases in which short-life asset treatment is ruled out |
| |
8 (1) | The Table in section 84 is amended as follows. |
| 40 |
|
| |
|
| |
|
(2) | In paragraph 1 after sub-paragraph (a) insert— |
| |
| | | section 13A (use for other |
| | | | | | | | | | | | | | | | | | | | | long funding leasing), or |
| | | 5 |
|
| |
9 (1) | In section 172 (scope of Chapter 14 of Part 2 (fixtures)) after subsection (2) |
| |
| |
“(2A) | Subsections (1) and (2) are subject to section 172A.”. |
| |
(2) | After section 172 insert— |
| 10 |
“172A | Long funding leases etc: cases where this Chapter does not apply. |
| |
(1) | This section applies where plant or machinery that is or becomes a |
| |
fixture is the subject of a long funding lease (see Chapter 6A). |
| |
(2) | This section also applies if, in any such case,— |
| |
(a) | the lessee under the long funding lease is or becomes the |
| 15 |
lessor of some or all of the plant or machinery under a further |
| |
| |
(b) | the further lease is not itself a long funding lease within |
| |
| |
(3) | This Chapter does not apply to determine the entitlement of the |
| 20 |
lessor or the lessee (under either lease) to allowances under this Part |
| |
in respect of expenditure on the plant or machinery. |
| |
(4) | This Chapter does not apply to determine whether the lessor or the |
| |
lessee (under either lease) is to be treated as the owner of the plant or |
| |
| 25 |
| |
| |
| |
10 | ICTA is amended as follows. |
| |
Special rules for long funding leases |
| 30 |
11 | In Part 12 (special classes of companies and businesses) after section 502 |
| |
|
| |
|
| |
|
insert the following Chapter— |
| |
| |
Special rules for long funding leases of plant or machinery: corporation tax |
| |
| |
| 5 |
| This Chapter has effect for the purposes of corporation tax only. |
| |
Lessors under long funding finance leases |
| |
502B | Lessor under long funding finance lease: rental earnings |
| |
(1) | This section applies for determining for the purposes of corporation |
| |
tax the profits of a company for any period of account in which it is |
| 10 |
the lessor of any plant or machinery under a long funding finance |
| |
| |
(2) | The amount to be brought into account as the lessor’s taxable income |
| |
from the lease for the period of account is the amount of the rental |
| |
earnings in respect of the lease for the period of account. |
| 15 |
(3) | The “rental earnings” for any period is the amount which, in |
| |
accordance with generally accepted accounting practice, falls (or |
| |
would fall) to be treated as the gross return on investment for that |
| |
period in respect of the lease where it meets the finance lease test. |
| |
(4) | If the lease is one which, under generally accepted accounting |
| 20 |
practice, falls (or would fall) to be treated as a loan in the accounts in |
| |
question, so much of the rentals under the lease as fall (or would fall) |
| |
to be treated as interest are to be treated for the purposes of this |
| |
section as rental earnings. |
| |
502C | Lessor under long funding finance lease: exceptional items |
| 25 |
(1) | This section applies for determining for the purposes of corporation |
| |
tax the profits of a company which is or has been the lessor under a |
| |
long funding finance lease. |
| |
(2) | This section has effect where a profit or loss (whether of an income |
| |
| 30 |
(a) | arises to the company in connection with the lease, and |
| |
(b) | in accordance with generally accepted accounting practice |
| |
falls to be recognised for accounting purposes in a period of |
| |
| |
(c) | would not, apart from this section, be brought into account in |
| 35 |
computing the profits of the company for the purposes of |
| |
| |
(3) | The profit or loss is to be treated— |
| |
(a) | in the case of a profit, as income of the company attributable |
| |
| 40 |
(b) | in the case of a loss, as a revenue expense incurred by the |
| |
company in connection with the lease. |
| |
|
| |
|
| |
|
(4) | Any reference in this section to an amount falling to be recognised |
| |
for accounting purposes in a period of account is a reference to an |
| |
amount falling to be recognised for accounting purposes— |
| |
(a) | in the company’s profit and loss account or income |
| |
| 5 |
(b) | in the company’s statement of recognised gains and losses or |
| |
statement of changes in equity, or |
| |
(c) | in any other statement of items brought into account in |
| |
computing the company’s profits or losses for that period. |
| |
502D | Lessor under long funding finance lease making termination payment |
| 10 |
(1) | This section applies for determining the liability to corporation tax of |
| |
a company which is or has been the lessor under a long funding |
| |
| |
| |
(a) | the lease terminates, and |
| 15 |
(b) | a sum calculated by reference to the termination value is paid |
| |
| |
| no deduction in respect of the sum paid to the lessee is allowed in |
| |
computing the profits of the company. |
| |
(3) | This section does not prevent a deduction in respect of a sum to the |
| 20 |
extent that the sum is brought into account in determining the |
| |
company’s rental earnings. |
| |
Lessors under long funding operating leases |
| |
502E | Lessor under long funding operating lease: periodic deduction |
| |
(1) | This section applies for determining for the purposes of corporation |
| 25 |
tax the profits of a company for any period of account— |
| |
(a) | for the whole of which, or |
| |
(b) | for any part of which, |
| |
| the company is the lessor of any plant or machinery under a long |
| |
| 30 |
(2) | A deduction is allowed in computing the profits of the company for |
| |
| |
(3) | The amount of the deduction for any period of account is to be |
| |
| |
(4) | First, find the “relevant value” for the purposes of subsection (6)(a) |
| 35 |
| |
(a) | if the only use of the plant or machinery by the lessor has |
| |
been the leasing of it under the long funding operating lease |
| |
as a qualifying activity, cost; |
| |
(b) | if the last previous use of the plant or machinery by the lessor |
| 40 |
was the leasing of it under another long funding operating |
| |
lease as a qualifying activity, market value; |
| |
(c) | if the last previous use of the plant or machinery by the lessor |
| |
was the leasing of it under a long funding finance lease as a |
| |
qualifying activity, the recognised value; |
| 45 |
|
| |
|
| |
|
(d) | if the last previous use of the plant or machinery by the lessor |
| |
was for the purposes of a qualifying activity other than |
| |
leasing under a long funding lease, the lower of cost and |
| |
| |
(e) | if the lessor owns the plant or machinery as a result of having |
| 5 |
incurred expenditure on its provision for purposes other than |
| |
those of a qualifying activity, but— |
| |
(i) | the plant or machinery is brought into use by the |
| |
lessor for the purposes of a qualifying activity on or |
| |
after 1st April 2006, and |
| 10 |
(ii) | that qualifying activity is the leasing of the plant or |
| |
machinery under the long funding operating lease, |
| |
| the relevant value is the lower of first use market value and |
| |
first use amortised value. |
| |
(5) | In subsection (4) above— |
| 15 |
“cost” means the amount of the expenditure incurred by the |
| |
lessor on the provision of the plant or machinery; |
| |
“first use amortised value” means the value that the plant or |
| |
machinery would have at the time when it is first brought |
| |
into use for the purposes of the qualifying activity, on the |
| 20 |
| |
(a) | the cost of acquiring the plant or machinery had been |
| |
written off on a straight line basis over the remaining |
| |
useful economic life of the plant or machinery, and |
| |
(b) | any further capital expenditure incurred had been |
| 25 |
written off on a straight line basis over so much of the |
| |
remaining economic life of the plant or machinery as |
| |
remains at the time when the expenditure is incurred; |
| |
“first use market value” means the market value of the plant or |
| |
machinery at the time when it is first brought into use for the |
| 30 |
purposes of the qualifying activity; |
| |
“market value” means the market value of the plant or |
| |
machinery at the commencement of the term of the long |
| |
| |
“recognised value” means the value at which the plant or |
| 35 |
machinery is recognised in the books or other financial |
| |
records of the lessor at the commencement of the long |
| |
| |
| |
(a) | the relevant value determined in accordance with subsection |
| 40 |
| |
| |
(b) | the amount which, at the commencement of the term of the |
| |
lease, is (or, in a case falling within subsection (4)(e) above, |
| |
would have been) expected to be the residual value of the |
| 45 |
| |
| to find the expected gross reduction in value over the term of the |
| |
| |
(7) | Apportion the amount of that expected gross reduction in value to |
| |
each period of account in which any part of the term of the lease falls. |
| 50 |
|
| |
|
| |
|
(8) | The apportionment must be on a time basis according to the |
| |
proportion of the term of the lease that falls in each period of account. |
| |
(9) | The amount of the deduction for any period of account is the amount |
| |
so apportioned to that period. |
| |
502F | Long funding operating lease: lessor’s additional expenditure |
| 5 |
(1) | This section applies if in any period of account— |
| |
(a) | a company is the lessor of any plant or machinery under a |
| |
long funding operating lease, |
| |
(b) | the company incurs capital expenditure in relation to the |
| |
| 10 |
(c) | that capital expenditure (the “additional expenditure”) is not |
| |
reflected in the market value of the plant or machinery at the |
| |
commencement of the term of the lease. |
| |
(2) | In a case falling within section 502E(4)(e) above, subsection (1)(c) |
| |
above has effect as if the reference to the commencement of the term |
| 15 |
of the lease were a reference to the time when the plant or machinery |
| |
is first brought into use by the lessor for the purposes of the |
| |
| |
(3) | Where this section applies, an additional deduction is allowed in |
| |
computing the profits of the company for each post-expenditure |
| 20 |
period of account in which the company is the lessor of the plant or |
| |
machinery under the lease. |
| |
(4) | The amount of the deduction for any such period of account is to be |
| |
| |
(5) | Find ARV, CRV, PRV, and TRV where— |
| 25 |
“ARV” is the amount which, at the time when the additional |
| |
expenditure is incurred, is expected to be the residual value |
| |
of the plant or machinery; |
| |
“CRV” is the amount which, at the commencement of the term |
| |
of the lease, is expected to be the residual value of the plant |
| 30 |
| |
“PRV” is the sum of any amounts that fell to be taken into |
| |
account as RRV (see subsection (6)) in the application of this |
| |
section in relation to any previous additional expenditure |
| |
incurred by the company in relation to the leased plant or |
| 35 |
| |
“TRV” is the total of CRV and PRV. |
| |
| |
(a) | if ARV exceeds TRV, RRV is the portion of the excess that is |
| |
a result of the additional expenditure, but |
| 40 |
(b) | if ARV does not exceed TRV, RRV is nil. |
| |
| |
(a) | the amount of the additional expenditure,
|
| |
| |
| 45 |
| to find the expected partial reduction in value over the remainder of |
| |
| |
|
| |
|
| |
|
(8) | Apportion the amount of that expected partial reduction in value to |
| |
each post-expenditure period of account in which any part of the |
| |
| |
(9) | The apportionment must be on a time basis according to the |
| |
proportion of the term of the lease that falls in each post-expenditure |
| 5 |
| |
(10) | The amount of the additional deduction for any period of account is |
| |
the amount so apportioned to that period. |
| |
(11) | In this section “post-expenditure period of account” means any |
| |
period of account ending after the incurring of the additional |
| 10 |
| |
502G | Lessor under long funding operating lease: termination of lease |
| |
(1) | This section applies for determining the liability to corporation tax of |
| |
a company which is the lessor immediately before the termination of |
| |
a long funding operating lease. |
| 15 |
| |
(a) | the termination amount (TA); |
| |
(b) | the total of any sums paid to the lessee that are calculated by |
| |
reference to the termination value (LP). |
| |
| 20 |
(a) | the relevant value for the purposes of section 502E(6)(a) (RV); |
| |
(b) | the total of the deductions allowable under section 502E for |
| |
periods of account for the whole or part of which the |
| |
company was the lessor before the termination of the lease |
| |
| 25 |
(c) | the amount, if any, (ERV) by which RV exceeds TD1. |
| |
| |
(a) | the total of any amounts of capital expenditure incurred by |
| |
the company which constitute additional expenditure for the |
| |
purposes of section 502F in the case of the lease (TAE); |
| 30 |
(b) | the total of any deductions allowable under section 502F for |
| |
periods of account for the whole or part of which the |
| |
company was the lessor before the termination of the lease |
| |
| |
(c) | the amount, if any, (EAE) by which TAE exceeds TD2. |
| 35 |
(5) | Step 4 is to find the total of ERV and EAE (T). |
| |
(6) | If (TA - LP) exceeds T, treat a profit of an amount equal to the excess |
| |
as arising to the company in the period of account in which the lease |
| |
| |
(7) | If T exceeds (TA - LP), treat a loss of an amount equal to the excess as |
| 40 |
arising to the company in that period of account. |
| |
(8) | A profit or loss treated as arising to the company under subsection |
| |
(6) or (7) above is to be treated— |
| |
(a) | in the case of a profit, as income of the company attributable |
| |
| 45 |
|
| |
|