Finance Bill

House of Commons

Session 2007 - 08
Internet Publications
Other Bills before Parliament

Finance Bill

Finance Bill (Volume II)
Schedule 18 — Friendly societies
277

(ii)
the contract is one made on or after that date and the
effecting and carrying out of the business also
constitutes business within paragraphs I, II or III of
Part II of Schedule 1 to the Financial Services and
Markets Act (Regulated Activities) Order 2001.”
      (2)
The amendment made by sub-paragraph (1) has effect for periods of account
beginning on or after 1 January 2007.
Transfers of exempt “other” business
3     (1)
After section 461C insert—
“461D
Transfers of other business
(1)
Where—
(a)
at any time a friendly society (“the transferee”) acquires by
way of transfer of engagements or amalgamation from
another friendly society (“the transferor”) any business, other
than life or endowment business, consisting of business
which relates to contracts made before that time, and
(b)
immediately before that time the transferor was exempt from
corporation tax on profits arising from that business,

the transferee is so exempt after that time.
(2)
But if during an accounting period of the transferee there is an
increase in the scale of benefits which it undertakes to provide in the
course of carrying on that business, the transferee shall not be
exempt from corporation tax by virtue of subsection (1) above for
that or any subsequent accounting period.
(3)
Where—
(a)
at any time a friendly society (“the transferee”) acquires by
way of transfer of engagements or amalgamation from
another friendly society (“the transferor”) any business, other
than life or endowment business, consisting of business
which relates to contracts made before that time, and
(b)
immediately before that time the transferor was not exempt
from corporation tax on profits arising from that business,

the transferee is not so exempt after that time.
(4)
The Treasury may by regulations provide that, where any business
of a friendly society is exempt from corporation tax by virtue of
subsection (1) above, or not so exempt by virtue of subsection (3)
above, the Corporation Tax Acts have effect subject to such
modifications (or exceptions) as the Treasury consider appropriate.
(5)
Regulations under subsection (4) above—
(a)
may make different provision for different cases,
(b)
may include any incidental, supplementary, consequential or
transitional provisions which the Treasury consider
appropriate, and
(c)
may include retrospective provision.

Finance Bill (Volume II)
Schedule 19 — Reduction of basic rate of income tax: transitional relief for gift aid charities
278

      (2)
The amendment made by sub-paragraph (1) has effect in relation to transfers
of engagements and amalgamations taking place on or after the day on
which this Act is passed.
Extension of section 463
4
In subsection (1) of section 463 (application of Corporation Tax Acts to life or
endowment business carried on by friendly societies), for “the life or
endowment” substitute “long-term”; and, accordingly, in the title of that
section, for “Life or endowment” substitute “Long-term”.
Repeal of obsolete provisions
5     (1)
Omit—
(a)
section 462(3) and (4) (tax exempt business: insurances made in 1984-
85), and
(b)
section 462A (election relating to profits attributable to pre-1991
contracts expressed not to be part of tax exempt business).
      (2)
In section 462(1), for “subsections (2) to (4)” substitute “subsection (2)”.
      (3)
In consequence of sub-paragraph (1), omit—
(a)
paragraph 2 of Schedule 9 to FA 1991,
(b)
paragraph 9 of Schedule 9 to F(No.2)A 1992, and
(c)
section 45(4) and (5) of FA 2007.
Schedule 19
Section 51

Reduction of basic rate of income tax: transitional relief for gift aid charities
Payment of gift aid supplement
1     (1)
A charity is entitled to be paid an amount by the Commissioners (referred to
in this Schedule as a payment of “gift aid supplement”) if the following
conditions are met.
      (2)
Condition A is that a gift aid donation is made to the charity in a transitional
tax year.
      (3)
Condition B is that the charity makes a claim for the donation to be exempt
from tax by virtue of—
(a)
section 505(1)(c)(ii) of ICTA (charitable companies),
(b)
section 521(4) of ITA 2007 (charitable trusts), or
(c)
paragraph 5(1)(c) of Schedule 18 to FA 2002 (community amateur
sports clubs).
      (4)
Condition C is that the claim is made within the period of two years
beginning immediately after the end of—
(a)
the accounting period to which the claim relates (in a case falling
within sub-paragraph (3)(a) or (c)), or
(b)
the tax year to which the claim relates (in a case falling within sub-
paragraph (3)(b)).

Finance Bill (Volume II)
Schedule 19 — Reduction of basic rate of income tax: transitional relief for gift aid charities
279

      (5)
Condition D is that the claim is allowed.
Amount of gift aid supplement
2     (1)
The amount of gift aid supplement that a charity is entitled to be paid in
respect of a gift aid donation is—

where—
DGN is the amount of the gift aid donation grossed up by reference to
the notional basic rate for the transitional tax year, and
DGA the amount of the gift aid donation grossed up by reference to the
actual basic rate of income tax for the transitional tax year.
      (2)
A charity is not entitled to be paid gift aid supplement in respect of a gift aid
donation if the amount determined in accordance with sub-paragraph (1) is
a negative amount.
The “notional basic rate”
3     (1)
The “notional basic rate” for a transitional tax year is calculated by adding
together—
(a)
the actual basic rate of income tax for that year, and
(b)
the transitional supplement for that year.
      (2)
But if the rate calculated for a transitional tax year by adding those two
things together is more than 22%, the notional basic rate for that year is 22%.
      (3)
The “transitional supplement” for each transitional tax year is 2%.
      (4)
Section 998 of ITA 2007 applies to the grossing up of an amount by reference
to a notional basic rate as if the notional basic rate were an actual rate of tax.
Errors in connection with payment of gift aid supplement
4     (1)
This paragraph applies if an officer of Revenue and Customs discovers that
payment or set-off of an amount of gift aid supplement—
(a)
ought not to have been made, or
(b)
is or has become excessive.
      (2)
The relevant amount of gift aid supplement may be recovered as if it were
an amount of income tax wrongly repaid to the charity (and, in particular,
section 30 of TMA 1970 and paragraph 52 of Schedule 18 to FA 1998 apply
accordingly).
      (3)
An amount to be recovered in accordance with sub-paragraph (2) is liable to
interest as if it were an amount of income tax wrongly repaid to the charity.
      (4)
In this paragraph “relevant amount of gift aid supplement” means the
payment or set-off of the amount of gift aid supplement, to the extent that
it—
(a)
ought not to have been made, or
(b)
is or has become excessive.

Finance Bill (Volume II)
Schedule 20 — Leases of plant or machinery
280

      (5)
For the purposes of this paragraph income tax is “wrongly repaid” to a
charity if it is an amount repaid to the charity which ought not to have been
repaid.
      (6)
For the purposes of this paragraph it does not matter if a charity is within the
charge to income tax or the charge to corporation tax.
General
5
Gift aid supplement is not—
(a)
income for the purposes of income tax, or
(b)
profits for the purposes of corporation tax.
6
Any expenditure incurred by the Commissioners under this Schedule is to
be paid out of money provided by Parliament.
7
In this Schedule—
“charity” has the same meaning as in Chapter 2 of Part 8 of ITA 2007
(gift aid);
“the Commissioners” means the Commissioners for Her Majesty’s
Revenue and Customs;
“gift aid donation” means a gift which is a qualifying donation for the
purposes of Chapter 2 of Part 8 of ITA 2007;
“gift aid supplement” has the meaning given in paragraph 1(1);
“transitional tax year” means each of the tax years 2008-09, 2009-10 and
2010-11.
Amendments
8
In section 25 of FA 1990 (donations to charities by individuals), after
subsection (10) insert—
“(10A)
Schedule 19 to the Finance Act 2008 contains provision for
transitional payments to charitable companies in respect of gifts
made in the tax years 2008-09 to 2010-11.”
9
In section 521 of ITA 2007 (gifts entitling donor to gift aid relief: income tax
liability and exemption of charity), after subsection (6) insert—
“(7)
Schedule 19 to the Finance Act 2008 contains provision for
transitional payments to charitable trusts in respect of gifts made in
the tax years 2008-09 to 2010-11.”
Schedule 20
Section 53

Leases of plant or machinery
Capital received in respect of lease to be treated as income
1     (1)
In Chapter 6 of Part 17 of ICTA (tax avoidance: miscellaneous), after section
785A insert—
“785B
Plant and machinery leases: capital receipts to be treated as income
(1)
This section applies if—

Finance Bill (Volume II)
Schedule 20 — Leases of plant or machinery
281

(a)
there is an unconditional obligation, under a lease of plant or
machinery or a relevant arrangement, to make a relevant
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 corporation tax purposes as receiving income
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
mentioned there, and
(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.
(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
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,

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
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.
(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).
(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)).

Finance Bill (Volume II)
Schedule 20 — Leases of plant or machinery
282

(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—
(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
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
the Capital Allowances Act reduce) the amount of
expenditure incurred by the lessor for the purposes of the
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
(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
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.
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—
(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
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).
785E
Section 785B: expectation that relevant capital payment will not be
paid
(1)
This section applies for corporation tax purposes if—

Finance Bill (Volume II)
Schedule 20 — Leases of plant or machinery
283

(a)
section 785B 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
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).”
      (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
(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—
(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
(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
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
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
attributable to the lease of an amount equal to the amount of the
capital payment.
(3)
The income is treated—