Finance Bill

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Session 2007 - 08
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Finance Bill

Finance Bill (Volume II)
Schedule 20 — Leases of plant or machinery
284

(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.
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—
(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).
(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 Part 3 of
ITTOIA 2005 (property income), or
(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
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)).
(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).

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Schedule 20 — Leases of plant or machinery
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(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
lessor for the purposes of CAA 2001 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 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
(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)).
(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 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
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—
(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
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—

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Schedule 20 — Leases of plant or machinery
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(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
after that date.
      (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”—
(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.
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
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
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
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).
(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.
      (6)
The amendment made by sub-paragraph (4) has effect in relation to leases
granted on or after 12 March 2008.

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Schedule 20 — Leases of plant or machinery
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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.
      (2)
In subsection (4)(a), after “lessor” insert “(“the relevant date”)”.
      (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—
“(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
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.
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”.
      (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
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
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.

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Schedule 20 — Leases of plant or machinery
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(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”.
      (8)
In section 217 (no first-year allowance for B’s expenditure), for subsection (3)
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—
“(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”.
     (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),
(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),
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
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”.
     (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(6) of ICTA (structured finance arrangements: exceptions),
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

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Schedule 20 — Leases of plant or machinery
289

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
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—
“(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
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
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
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—
(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
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.

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Schedule 20 — Leases of plant or machinery
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      (2)
After section 502G insert—
“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
funding lease if the following condition is met.
(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
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
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
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
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.
(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
(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
(c)
lease B is a long funding lease.
(2)
Sections 502B to 502G do not apply in relation to lease B.