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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).

 
 

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

285

 

(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—

 
 

Finance Bill (Volume II)
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.

 
 

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

287

 

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.

 
 

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

288

 

(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

 
 

Finance Bill (Volume II)
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.

 
 

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

290

 

      (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.

 
 

 
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