Finance Bill

House of Commons

Session 2007 - 08
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Finance Bill

Finance Bill
Schedule 20 — Leases of plant or machinery
263

substitute—
“(3)
This section does not apply if plant or machinery is the subject of a
sale and finance leaseback (as defined in section 221).”
      (9)
In section 218 (restriction on B’s qualifying expenditure), for subsection (4)
substitute—
5
“(4)
This section does not apply if plant or machinery is the subject of a
sale and finance leaseback (as defined in section 221), but see section
225.”
     (10)
In section 219(1) (meaning of “finance lease”), omit “and which are not a long
funding lease in the case of the lessor”.
10
     (11)
In section 221(1) (meaning of “sale and finance leaseback”), for “sections 222
to 228” substitute “section 225”.
     (12)
Omit—
(a)
section 222 (disposal value restricted),
(b)
section 223 (no first-year allowance for B’s expenditure),
15
(c)
section 224 (restriction on B’s qualifying expenditure), and
(d)
section 226 (qualifying expenditure limited in subsequent
transactions).
     (13)
In section 227 (circumstances in which election may be made)—
(a)
in subsection (1)(b), omit sub-paragraph (ii) (and the “or” before it),
20
and
(b)
in subsection (2)(c), for “217, 218, 223 or 224” substitute “217 or 218”,

and the heading before that section accordingly becomes “Sale and leaseback:
election for special treatment”.
     (14)
In section 228 (effect of election: relaxation of restriction on B’s qualifying
25
expenditure, etc)—
(a)
in subsection (1), omit “or 224”, and
(b)
omit subsection (4).
     (15)
In section 230(2) (exception for manufacturers and suppliers), for “sections
222 to” substitute “section”.
30
     (16)
In section 241(1)(b) (no first-year allowance in respect of additional VAT
liability), omit “or 223(1)”.
     (17)
Omit section 243 (restriction on B’s qualifying expenditure: sale and finance
leaseback).
     (18)
In section 774E of ICTA (structured finance arrangements: exceptions)—
35
(a)
in subsection (5)(b), omit “with the modifications contained in
section 228F of that Act”, and
(b)
in subsection (6), omit the second sentence.
     (19)
The amendments made by this paragraph have effect in the case of plant or
machinery which is the subject of a sale and finance leaseback (as defined in
40
section 221 of CAA 2001) where the date of the transaction (within the
meaning of that section) is on or after 9 October 2007.
     (20)
In the case of plant or machinery which is the subject of a sale and finance
leaseback (as defined in section 221 of CAA 2001) where the date of the

Finance Bill
Schedule 20 — Leases of plant or machinery
264

transaction (within the meaning of that section) is before 12 March 2008,
section 70I(10) of CAA 2001 has effect as if for “any finance lease of a kind”
there were substituted “the finance lease”.
7     (1)
In section 70I of CAA 2001 (meaning of “short lease”), after subsection (9)
insert—
5
“(9A)
Where plant or machinery is the subject of a lease and finance
leaseback (as defined in section 228A)—
(a)
the finance lease mentioned in section 228A(2)(c), and
(b)
any other finance lease forming part of the arrangements for
the lease and finance leaseback (except the lease referred to in
10
section 228A(2)(a)),

is not a short lease (if it otherwise would be).”
      (2)
The amendment made by sub-paragraph (1) has effect in the case of plant or
machinery which is the subject of a lease and finance leaseback (as defined
in section 228A of CAA 2001) where the date of the transaction mentioned
15
in subsection (2)(a) of that section is on or after 12 March 2008.
Restriction on lessee’s right to elect that rules for non-long funding leases apply
8     (1)
In section 70H of CAA 2001 (lessee: requirement for tax return treating lease
as long funding lease), after subsection (1) insert—
“(1A)
Subsection (1) does not apply in respect of a lease of plant or
20
machinery (“lease A”) if, at any time in the relevant period—
(a)
the lessee is the lessor of a lease of any of that plant or
machinery (“lease B”), and
(b)
lease B is a long funding lease.
(1B)
In subsection (1A) “the relevant period” means the period—
25
(a)
beginning with the inception of lease A, and
(b)
ending with the making of the tax return for the initial period
(or, if that return is amended, the making of the last
amendment).”
      (2)
The amendment made by sub-paragraph (1) has effect in relation to leases
30
entered into on or after 13 December 2007.
Lessors under long funding leases of plant or machinery
9     (1)
Chapter 5A of Part 12 of ICTA (special rules for long funding leases of plant
or machinery: corporation tax) is amended as follows.
      (2)
After section 502G insert—
35
“Lessors under long funding finance or operating leases: avoidance etc
502GA
  Cases where ss. 502B to 502G do not apply: plant or machinery held
as trading stock
(1)
Sections 502B to 502G do not apply in the case of a company which
is or has been the lessor of any plant or machinery under a long
40
funding lease if the following condition is met.

Finance Bill
Schedule 20 — Leases of plant or machinery
265

(2)
The condition is that any part of the expenditure incurred by the
company on the acquisition of the plant or machinery for leasing
under the lease—
(a)
is (apart from those sections) allowable as a deduction in
calculating its profits or losses for the purposes of
5
corporation tax, and
(b)
is so allowable as a result of the plant or machinery forming
part of its trading stock.
(3)
For the purposes of this section the cases in which expenditure
incurred by a company on the acquisition of any plant or machinery
10
for leasing under a lease is allowable as such a deduction include any
case where—
(a)
the company becomes entitled to the deduction at any time
after the expenditure is incurred, and
(b)
the deduction arises as a result of the plant or machinery
15
forming part of its trading stock at that time.
(4)
If—
(a)
at any time any of sections 502B to 502G has applied for
determining the amounts to be taken into account in
calculating the profits or losses of the company for the
20
purposes of corporation tax, and
(b)
the condition in subsection (2) is met at any subsequent time,

those amounts, and any other amounts which (as a result of this
section) are to be so taken into account, are subject to such
adjustments as are just and reasonable.
25
(5)
All such assessments and adjustments of assessments are to be made
as are necessary to give effect to subsection (4).”
      (3)
After section 502GA insert—
“502GB
Cases where ss. 502B to 502G do not apply: lessor also lessee under
non-long funding lease
30
(1)
This section applies if—
(a)
a company is the lessee of any plant or machinery under a
lease (“lease A”) that is not a long funding lease,
(b)
it enters into a lease (“lease B”) of any of that plant or
machinery (as lessor), and
35
(c)
lease B is a long funding lease.
(2)
Sections 502B to 502G do not apply in relation to lease B.
(3)
If by virtue of section 70H of the Capital Allowances Act (tax return
by lessee treating lease as long funding lease) lease A becomes a long
funding lease (and does not cease to be such a lease), treat this section
40
as never having applied in relation to lease B.”
      (4)
After section 502GB insert—
“502GC
  Cases where ss. 502B to 502G do not apply: other avoidance
(1)
Sections 502B to 502G do not apply in the case of a company which
is or has been the lessor of any plant or machinery under a long
45
funding lease if conditions A to C are met.

Finance Bill
Schedule 20 — Leases of plant or machinery
266

(2)
Condition A is that the long funding lease forms part of any
arrangement entered into by the company which includes one or
more other transactions (whether the arrangement is entered into
before or after or at the inception of the lease).
(3)
Condition B is that the main purpose, or one of the main purposes,
5
of the arrangement is to secure that, over the relevant period, there
would be a substantial difference between—
(a)
the total amount of the amounts under the arrangement
which are, in accordance with generally accepted accounting
practice, recognised in determining the company’s profit or
10
loss for any period or taken into account in calculating the
amounts which are so recognised, and
(b)
the total amount of the amounts under the arrangement
which are taken into account in calculating the profits or
losses of the company for the purposes of corporation tax.
15
(4)
For the purposes of condition B “the relevant period” means the
period which begins with the inception of the lease and ends with the
end of the term of the lease.
(5)
Condition C is that the difference would be attributable (wholly or
partly) to the application of any of sections 502B to 502G in relation
20
to the company by reference to the plant or machinery under the
lease.
(6)
The reference in this section to an amount being recognised in
determining a company’s profit or loss for a period is to an amount
being recognised for accounting purposes—
25
(a)
in the company’s profit and loss account or income
statement,
(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
30
calculating the company’s profits and losses for that period.
(7)
For the purposes of this section it does not matter whether the parties
to any transaction which forms part of the arrangement differ from
the parties to any of the other transactions.
(8)
For the purposes of this section the cases in which two or more
35
transactions are to be taken as forming part of an arrangement
include any case in which it would be reasonable to assume that one
or more of them—
(a)
would not have been entered into independently of the other
or others, or
40
(b)
if entered into independently of the other or others, would
not have taken the same form or been on the same terms.
(9)
If—
(a)
at any time any of sections 502B to 502G has applied for
determining the amounts to be taken into account in
45
calculating the profits or losses of the company for the
purposes of corporation tax, and
(b)
conditions A to C are met at any subsequent time,

Finance Bill
Schedule 20 — Leases of plant or machinery
267


those amounts, and any other amounts which (as a result of this
section) are to be so taken into account, are subject to such
adjustments as are just and reasonable.
(10)
All such assessments and adjustments of assessments are to be made
as are necessary to give effect to subsection (9).”
5
      (5)
The amendment made by sub-paragraph (2) has effect where—
(a)
expenditure is incurred on or after 9 October 2007, or
(b)
a company becomes entitled to a deduction in calculating its profits
or losses for the purposes of corporation tax as a result of any plant
or machinery forming part of its trading stock on or after that date.
10
      (6)
The amendment made by sub-paragraph (3) has effect where the lease
mentioned in section 502GB(1)(b) of ICTA is entered into on or after 13
December 2007.
      (7)
The amendment made by sub-paragraph (4) has effect in relation to
arrangements entered into on or after 9 October 2007.
15
10    (1)
Chapter 10A of Part 2 of ITTOIA 2005 (corresponding income tax rules) is
amended as follows.
      (2)
After section 148F insert—
“Lessors under long funding finance or operating leases: avoidance etc
148FA
  Cases where ss. 148A to 148F do not apply: plant or machinery held
20
as trading stock
(1)
Sections 148A to 148F do not apply in the case of a person carrying
on a trade who is or has been the lessor of any plant or machinery
under a long funding lease if the following condition is met.
(2)
The condition is that any part of the expenditure incurred by the
25
person on the acquisition of the plant or machinery for leasing under
the lease—
(a)
is (apart from those sections) allowable as a deduction in
calculating the profits or losses of the trade, and
(b)
is so allowable as a result of the plant or machinery forming
30
part of the trading stock of the trade.
(3)
For the purposes of this section the cases in which expenditure
incurred by a person carrying on a trade on the acquisition of any
plant or machinery for leasing under a lease is allowable as such a
deduction include any case where—
35
(a)
the person becomes entitled to the deduction at any time after
the expenditure is incurred, and
(b)
the deduction arises as a result of the plant or machinery
forming part of the trading stock of the trade at that time.
(4)
If—
40
(a)
at any time any of sections 148A to 148F has applied for
determining the amounts to be taken into account in
calculating the profits or losses of the trade, and
(b)
the condition in subsection (2) is met at any subsequent time,

Finance Bill
Schedule 20 — Leases of plant or machinery
268


those amounts, and any other amounts which (as a result of this
section) are to be so taken into account, are subject to such
adjustments as are just and reasonable.
(5)
All such assessments and adjustments of assessments are to be made
as are necessary to give effect to subsection (4).”
5
      (3)
After section 148FA insert—
“148FB
Cases where ss. 148A to 148F do not apply: lessor also lessee under
non-long funding lease
(1)
This section applies if—
(a)
a person is the lessee of any plant or machinery under a lease
10
(“lease A”) that is not a long funding lease,
(b)
the person enters into a lease (“lease B”) of any of that plant
or machinery (as lessor), and
(c)
lease B is a long funding lease.
(2)
Sections 148A to 148F do not apply in relation to lease B.
15
(3)
If by virtue of section 70H of CAA 2001 (tax return by lessee treating
lease as long funding lease) lease A becomes a long funding lease
(and does not cease to be such a lease), treat this section as never
having applied in relation to lease B.”
      (4)
After section 148FB insert—
20
“148FC
  Cases where ss. 148A to 148F do not apply: other avoidance
(1)
Sections 148A to 148F do not apply in the case of a person carrying
on a trade who is or has been the lessor of any plant or machinery
under a long funding lease if conditions A to C are met.
(2)
Condition A is that the long funding lease forms part of any
25
arrangement entered into by the person which includes one or more
other transactions (whether the arrangement is entered into before or
after or at the inception of the lease).
(3)
Condition B is that the main purpose, or one of the main purposes,
of the arrangement is to secure that, over the relevant period, there
30
would be a substantial difference between—
(a)
the total amount of the amounts under the arrangement
which are, in accordance with generally accepted accounting
practice, recognised in determining the profit or loss of the
trade for any period or taken into account in calculating the
35
amounts which are so recognised, and
(b)
the total amount of the amounts under the arrangement
which are taken into account in calculating the profits or
losses of the trade.
(4)
For the purposes of condition B “the relevant period” means the
40
period which begins with the inception of the lease and ends with the
end of the term of the lease.
(5)
Condition C is that the difference would be attributable (wholly or
partly) to the application of any of sections 148A to 148F in relation
to the person by reference to the plant or machinery under the lease.
45

Finance Bill
Schedule 20 — Leases of plant or machinery
269

(6)
The reference in this section to an amount being recognised in
determining the profit or loss of a trade for a period is to an amount
being recognised for accounting purposes—
(a)
in the profit and loss account or income statement relating to
the trade,
5
(b)
in the statement of recognised gains and losses or statement
of changes in equity relating to the trade, or
(c)
in any other statement of items brought into account in
calculating the profits and losses of the trade for that period.
(7)
For the purposes of this section it does not matter whether the parties
10
to any transaction which forms part of the arrangement differ from
the parties to any of the other transactions.
(8)
For the purposes of this section the cases in which two or more
transactions are to be taken as forming part of an arrangement
include any case in which it would be reasonable to assume that one
15
or more of them—
(a)
would not have been entered into independently of the other
or others, or
(b)
if entered into independently of the other or others, would
not have taken the same form or been on the same terms.
20
(9)
If—
(a)
at any time any of sections 148A to 148F has applied for
determining the amounts to be taken into account in
calculating the profits or losses of the trade, and
(b)
conditions A to C are met at any subsequent time,
25

those amounts, and any other amounts which (as a result of this
section) are to be so taken into account, are subject to such
adjustments as are just and reasonable.
(10)
All such assessments and adjustments of assessments are to be made
as are necessary to give effect to subsection (9).”
30
      (5)
The amendment made by sub-paragraph (2) has effect where—
(a)
expenditure is incurred on or after 9 October 2007, or
(b)
a person carrying on a trade becomes entitled to a deduction in
calculating the profits or losses of the trade as a result of any plant or
machinery forming part of the trading stock of the trade on or after
35
that date.
      (6)
The amendment made by sub-paragraph (3) has effect where the lease
mentioned in section 148FB(1)(b) of ITTOIA 2005 is entered into on or after
13 December 2007.
      (7)
The amendment made by sub-paragraph (4) has effect in relation to
40
arrangements entered into on or after 9 October 2007.
11    (1)
If, at the beginning of 13 December 2007 (“the relevant date”)—
(a)
a company or a person carrying on a trade is the lessee of any plant
or machinery under a lease that is not a long funding lease (“lease
A”), and
45
(b)
the company or person is the lessor of any of that plant or machinery
under a lease that is a long funding finance lease (“lease B”),

sub-paragraphs (2) to (10) apply in respect of lease B.