Finance Bill

House of Commons

Session 2007 - 08
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Finance Bill

Finance Bill
Schedule 20 — Leases of plant or machinery
256

(b)
a relevant capital payment is made under such a lease or
arrangement otherwise than in pursuance of such an
obligation.
(2)
The lessor is treated for corporation tax purposes as receiving income
attributable to the lease of an amount equal to the amount of the
5
capital payment.
(3)
The income is treated—
(a)
if subsection (1)(a) applies, as income for the period of
account in which there is first an obligation of the kind
mentioned there, and
10
(b)
if subsection (1)(b) applies, as income for the period of
account in which the payment is made.
785C
Section 785B: interpretation
(1)
The expressions used in section 785B and this section are to be
interpreted as follows.
15
(2)
“Capital payment” means any payment except one which, if made to
the lessor—
(a)
would fall to be included in a calculation of the lessor’s
income for corporation tax purposes, or
(b)
would fall to be included in such a calculation but for section
20
502B (rental earnings under long funding finance lease).
(3)
“Lease” includes—
(a)
a licence, and
(b)
the letting of a ship or aircraft on charter or the letting of any
other asset on hire,
25

and “lessor” and “lessee” are to be read accordingly.
(4)
“Lease of plant or machinery” includes a lease of plant or machinery
and other property but does not include—
(a)
a lease where the income attributable to the lease received by
the lessor (if any) would be chargeable to tax under Schedule
30
A, or
(b)
a lease of plant or machinery where the lessor has incurred
what would (but for section 34A of the Capital Allowances
Act) be qualifying expenditure (within the meaning of Part 2
of that Act) on the plant or machinery.
35
(5)
“Relevant arrangement” means any agreement or arrangement
relating to a lease of plant or machinery, including one made before
the lease is entered into or after it has ended (and, accordingly,
“lessor” and lessee” include prospective and former lessors and
lessees).
40
(6)
A capital payment, in relation to a lease or relevant arrangement, is
“relevant” if condition A or B is met (but this is subject to subsection
(9)).
(7)
Condition A is that the capital payment is payable (or paid), directly
or indirectly, by (or on behalf of) the lessee to (or on behalf of) the
45
lessor in connection with—
(a)
the grant, assignment, novation or termination of the lease, or

Finance Bill
Schedule 20 — Leases of plant or machinery
257

(b)
any provision of the lease or relevant arrangement (including
the variation or waiver of any such provision).
(8)
Condition B is that rentals payable under the lease are less than (or
payable later than) they might reasonably be expected to be if there
were no obligation to make the capital payment (and the capital
5
payment were not made).
(9)
A capital payment is not “relevant” if or to the extent that—
(a)
the capital payment reduces (or would but for section 536 of
the Capital Allowances Act reduce) the amount of
expenditure incurred by the lessor for the purposes of the
10
Capital Allowances Act in respect of the plant or machinery
in question,
(b)
the capital payment is compensation for loss resulting from
damage to, or damage caused by, the plant or machinery in
question, or
15
(c)
the capital payment would fall (or falls) to be brought into
account by the lessor as a disposal receipt within the meaning
of Part 2 of the Capital Allowances Act (see section 60(1) of
that Act).
(10)
References to payment include the provision of value by any means
20
other than the making of a payment, and accordingly—
(a)
references to the making of a payment include the passing of
value (by any other means), and
(b)
references to the amount of the payment include the value
passed.
25
785D
Section 785B: lease of plant and machinery and other property
(1)
This section applies if section 785B applies in relation to a lease of
plant or machinery and other property (see section 785C(4)).
(2)
The relevant capital payment is to be apportioned, on a just and
reasonable basis, between—
30
(a)
the plant and machinery, and
(b)
the other property.
(3)
If the income (if any) received by the lessor that is attributable to any
of the plant or machinery is chargeable to tax under Schedule A, treat
that plant or machinery as falling within subsection (2)(b) (and not
35
subsection (2)(a)).
(4)
Section 785B(2) has effect as if the reference to the amount of the
capital payment were to such amount as is apportioned under
subsection (2) in respect of the plant or machinery within subsection
(2)(a).
40
785E
Section 785B: expectation that relevant capital payment will not be
paid
(1)
This section applies for corporation tax purposes if—
(a)
section 785B applies by virtue of subsection (1)(a) of that
section, and
45
(b)
at any time, the lessor reasonably expects that the relevant
capital payment will not be paid (or will not be paid in full).

Finance Bill
Schedule 20 — Leases of plant or machinery
258

(2)
For the purposes of calculating the profits of the lessor, a deduction
is allowed for the period of account which includes that time.
(3)
The amount of the deduction is equal to the amount reasonably
expected not to be paid.
(4)
No other deduction is allowed in respect of the matters mentioned in
5
subsection (1).”
      (2)
The amendment made by sub-paragraph (1) has effect in relation to—
(a)
cases where there is first an obligation of the kind mentioned in
subsection (1)(a) of section 785B of ICTA on or after 13 December
2007, and
10
(b)
capital payments within subsection (1)(b) of that section made on or
after that date.
      (3)
In relation to a case where the condition in paragraph (a) or (b) of section
785B(1) of ICTA was met before 12 March 2008, sections 785B to 785E of that
Act have effect as if—
15
(a)
for section 785C(4) there were substituted—
“(4)
“Lease of plant or machinery”—
(a)
includes an equipment lease within the meaning of
Chapter 14 of Part 2 of the Capital Allowances Act,
but
20
(b)
subject to that, does not include a lease of plant or
machinery and other property.”, and
(b)
section 785D were omitted.
2     (1)
In ITA 2007, after section 809 insert—
“Chapter 6
25
Avoidance involving leases of plant and machinery
809ZA
Plant and machinery leases: capital receipts to be treated as income
(1)
This section applies if—
(a)
there is an unconditional obligation, under a lease of plant or
machinery or a relevant arrangement, to make a relevant
30
capital payment (at any time), or
(b)
a relevant capital payment is made under such a lease or
arrangement otherwise than in pursuance of such an
obligation.
(2)
The lessor is treated for income tax purposes as receiving income
35
attributable to the lease of an amount equal to the amount of the
capital payment.
(3)
The income is treated—
(a)
if subsection (1)(a) applies, as income for the period of
account in which there is first an obligation of the kind
40
mentioned there, and
(b)
if subsection (1)(b) applies, as income for the period of
account in which the payment is made.

Finance Bill
Schedule 20 — Leases of plant or machinery
259

809ZB
Section 809ZA: interpretation
(1)
The expressions used in section 809ZA and this section are to be
interpreted as follows.
(2)
“Capital payment” means any payment except one which, if made to
the lessor—
5
(a)
would fall to be included in a calculation of the lessor’s
income for income tax purposes, or
(b)
would fall to be included in such a calculation but for section
148A of ITTOIA 2005 (rental earnings under long funding
finance lease).
10
(3)
“Lease” includes—
(a)
a licence, and
(b)
the letting of a ship or aircraft on charter or the letting of any
other asset on hire,

and “lessor” and “lessee” are to be read accordingly.
15
(4)
“Lease of plant or machinery” includes a lease of plant or machinery
and other property but does not include—
(a)
a lease where the income attributable to the lease received by
the lessor (if any) would be chargeable to tax under Part 3 of
ITTOIA 2005 (property income), or
20
(b)
a lease of plant or machinery where the lessor has incurred
what would (but for section 34A of CAA 2001) be qualifying
expenditure (within the meaning of Part 2 of that Act) on the
plant or machinery.
(5)
“Relevant arrangement” means any agreement or arrangement
25
relating to a lease of plant or machinery, including one made before
the lease is entered into or after it has ended (and, accordingly,
“lessor” and lessee” include prospective and former lessors and
lessees).
(6)
A capital payment, in relation to a lease or relevant arrangement, is
30
“relevant” if condition A or B is met (but this is subject to subsection
(9)).
(7)
Condition A is that the capital payment is payable (or paid), directly
or indirectly, by (or on behalf of) the lessee to (or on behalf of) the
lessor in connection with—
35
(a)
the grant, assignment, novation or termination of the lease, or
(b)
any provision of the lease or relevant arrangement (including
the variation or waiver of any such provision).
(8)
Condition B is that rentals payable under the lease are less than (or
payable later than) they might reasonably be expected to be if there
40
were no obligation to make the capital payment (and the capital
payment were not made).
(9)
A capital payment is not “relevant” if or to the extent that—
(a)
the capital payment reduces (or would but for section 536 of
CAA 2001 reduce) the amount of expenditure incurred by the
45
lessor for the purposes of CAA 2001 in respect of the plant or
machinery in question,

Finance Bill
Schedule 20 — Leases of plant or machinery
260

(b)
the capital payment is compensation for loss resulting from
damage to, or damage caused by, the plant or machinery in
question, or
(c)
the capital payment would fall (or falls) to be brought into
account by the lessor as a disposal receipt within the meaning
5
of Part 2 of CAA 2001 (see section 60(1) of that Act).
(10)
References to payment include the provision of value by any means
other than the making of a payment, and accordingly—
(a)
references to the making of a payment include the passing of
value (by any other means), and
10
(b)
references to the amount of the payment include the value
passed.
809ZC
Section 809ZA: lease of plant and machinery and other property
(1)
This section applies if section 809ZA applies in relation to a lease of
plant or machinery and other property (see section 809ZB(4)).
15
(2)
The relevant capital payment is to be apportioned, on a just and
reasonable basis, between—
(a)
the plant and machinery, and
(b)
the other property.
(3)
If the income (if any) received by the lessor that is attributable to any
20
of the plant or machinery is chargeable to tax under Part 3 of ITTOIA
2005 (property income), treat that plant or machinery as falling
within subsection (2)(b) (and not subsection (2)(a)).
(4)
Section 809ZA(2) has effect as if the reference to the amount of the
capital payment were to such amount as is apportioned under
25
subsection (2) in respect of the plant or machinery within subsection
(2)(a).
809ZD
Section 809ZA: expectation that relevant capital payment will not be
paid
(1)
This section applies for income tax purposes if—
30
(a)
section 809ZA applies by virtue of subsection (1)(a) of that
section, and
(b)
at any time, the lessor reasonably expects that the relevant
capital payment will not be paid (or will not be paid in full).
(2)
For the purposes of calculating the profits of the lessor, a deduction
35
is allowed for the period of account which includes that time.
(3)
The amount of the deduction is equal to the amount reasonably
expected not to be paid.
(4)
No other deduction is allowed in respect of the matters mentioned in
subsection (1).”
40
      (2)
The amendment made by sub-paragraph (1) has effect in relation to—
(a)
cases where there is first an obligation of the kind mentioned in
subsection (1)(a) of section 809ZA of ITA 2007 on or after 13
December 2007, and
(b)
capital payments within subsection (1)(b) of that section made on or
45
after that date.

Finance Bill
Schedule 20 — Leases of plant or machinery
261

      (3)
In relation to a case where the condition in paragraph (a) or (b) of section
809ZA(1) of ITA 2007 was met before 12 March 2008, sections 809ZA to
809ZD of that Act have effect as if—
(a)
for section 809ZB(4) there were substituted—
“(4)
“Lease of plant or machinery”—
5
(a)
includes an equipment lease within the meaning of
Chapter 14 of Part 2 of CAA 2001, but
(b)
subject to that, does not include a lease of plant or
machinery and other property.”, and
(b)
section 809ZC were omitted.
10
3
In section 785A of ICTA (rent factoring of leases of plant or machinery), after
subsection (5A) insert—
“(5B)
This section does not apply in relation to a relevant capital payment
to which section 785B below or section 809ZA of ITA 2007 applies;
and “relevant capital payment” here has the same meaning as in that
15
section.”
Disposal events: grant of long funding lease
4     (1)
Section 61 of CAA 2001 (disposal events and disposal values) is amended as
follows.
      (2)
In the second column of the Table in subsection (2), in the entry relating to
20
item 5A, at the end insert “(“the relevant date”)”.
      (3)
After subsection (5) insert—
“(6)
The following provisions apply for the purposes of calculating the
disposal value for item 5A of the Table.
(7)
Treat any rentals under the lease made (or due) on or before the
25
relevant date as made (and due) on the day after that date.”
      (4)
After subsection (7) insert—
“(8)
Treat the lessor as having no liabilities of any kind at any time on the
relevant date (but only if the effect of doing so would be to increase
the disposal value).
30
(9)
For the purposes of subsection (8) “liabilities” includes, where the
lessor is a company, any share capital issued by the company which
falls to be treated for accounting purposes as a liability.”
      (5)
The amendments made by sub-paragraphs (2) and (3) have effect in relation
to leases granted on or after 13 December 2007.
35
      (6)
The amendment made by sub-paragraph (4) has effect in relation to leases
granted on or after 12 March 2008.
Deemed disposals: plant or machinery used under long funding lease
5     (1)
Section 25A of TCGA 1992 (long funding leases of plant and machinery:
deemed disposals) is amended as follows.
40
      (2)
In subsection (4)(a), after “lessor” insert “(“the relevant date”)”.

Finance Bill
Schedule 20 — Leases of plant or machinery
262

      (3)
After subsection (4) insert—
“(4A)
The following provisions apply for the purposes of subsection (4)(a).
(4B)
Treat any rentals under the lease made (or due) on or before the
relevant date as made (and due) on the day after that date.”
      (4)
After subsection (4B) insert—
5
“(4C)
Treat the lessor as having no liabilities of any kind at any time on the
relevant date (but only if the effect of doing so would be to increase
the amount calculated under subsection (4)(a)).
(4D)
For the purposes of subsection (4C) “liabilities” includes, where the
lessor is a company, any share capital issued by the company which
10
falls to be treated for accounting purposes as a liability.”
      (5)
The amendments made by sub-paragraphs (2) and (3) have effect in relation
to leases granted on or after 13 December 2007.
      (6)
The amendment made by sub-paragraph (4) has effect in relation to leases
granted on or after 12 March 2008.
15
Plant or machinery subject to a sale and finance leaseback or lease and finance leaseback
6     (1)
Part 2 of CAA 2001 (plant and machinery allowances) is amended as follows.
      (2)
In section 13(5) (use for qualifying activity of plant or machinery provided
for other purposes), omit “or 224”.
      (3)
In section 52(5) (first-year allowances), omit “, 223”.
20
      (4)
In section 57(3) (available qualifying expenditure), omit “224(1),”.
      (5)
In section 66 (provisions referred to in section 60(1)(b)), omit the entry
relating to section 222.
      (6)
In section 70I (meaning of “short lease”), after subsection (9) insert—
“(10)
Where plant or machinery is the subject of a sale and finance
25
leaseback (as defined in section 221), any finance lease of a kind
mentioned in section 221(1)(c) is not a short lease (if it otherwise
would be).
(11)
But, if the conditions set out in section 227(2) are met, B and S (within
the meaning of section 221) may make an election the effect of which
30
is that—
(a)
subsection (10) above does not apply,
(b)
section 228(2) and (3) apply in relation to B (but this does not
prevent section 225 from applying), and
(c)
section 228(5) applies in relation to S.
35
(12)
Subsections (4) to (6) of section 227 apply in relation to elections
under this section as they apply in relation to elections under that
section.”
      (7)
In section 89(3)(b) (disposal to connected person), for “sections 222 to”
substitute “section”.
40
      (8)
In section 217 (no first-year allowance for B’s expenditure), for subsection (3)