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
291

(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
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
funding lease if conditions A to C are met.
(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,
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
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.
(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
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—
(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
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
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—

Finance Bill (Volume II)
Schedule 20 — Leases of plant or machinery
292

(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.
(9)
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)
conditions A to C are 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.
(10)
All such assessments and adjustments of assessments are to be made
as are necessary to give effect to subsection (9).”
      (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.
      (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.
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
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
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
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—

Finance Bill (Volume II)
Schedule 20 — Leases of plant or machinery
293

(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—
(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,

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 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
(“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.
(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—
“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
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
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
amounts which are so recognised, and

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Schedule 20 — Leases of plant or machinery
294

(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
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.
(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,
(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
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
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.
(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,

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)
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
that date.

Finance Bill (Volume II)
Schedule 20 — Leases of plant or machinery
295

      (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
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
(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.
      (2)
Section 502B of ICTA or section 148A of ITTOIA 2005 (rental earnings) does
not apply in relation to a period of account within sub-paragraph (3).
      (3)
A period of account is within this sub-paragraph if—
(a)
it begins on or after the relevant date, and
(b)
no rentals which were due under lease B before the relevant date are
(wholly or in part) in respect of any part of the period of account.
      (4)
For the purpose of calculating the profits of the lessor under lease B for a
period of account ending on or after the relevant date that is not within sub-
paragraph (3), treat the lessor as receiving for that period of account income
attributable to lease B of an amount equal to the relevant amount.
      (5)
The “relevant amount” is an amount equal to so much of the rentals that—
(a)
become due on or after the relevant date, and
(b)
are wholly or partly in respect of the period of account,

as would not reasonably be regarded as reflected in the rental earnings for
that period of account.

“Rental earnings” here has the same meaning as in section 502B of ICTA or
section 148A of ITTOIA 2005.
      (6)
If any rental is paid for a period (“the rental period”) which begins before the
relevant date or is not wholly within the period of account, for the purposes
of sub-paragraph (5) treat the amount of that rent as equal to the amount
apportioned (on a time basis) in respect of so much of the rental period as
falls on or after the relevant date and within the period of account.
      (7)
The income treated as received by virtue of sub-paragraph (4) is in addition
to any amount brought into account under section 502B(2) of ICTA or
section 148A(2) of ITTOIA 2005.
      (8)
Section 502C of ICTA or section 148B of ITTOIA 2005 (exceptional items)
does not apply in relation to any profit or loss arising on or after the relevant
date.
      (9)
If section 502D of ICTA or section 148C of ITTOIA 2005 (lessor making
termination payment) applies in respect of the termination of lease B on or
after the relevant date, a deduction is allowed (in calculating the profits of
the lessor) in respect of the sum paid to the lessee.

Finance Bill (Volume II)
Schedule 20 — Leases of plant or machinery
296

     (10)
The amount of that deduction is (if it would otherwise exceed that amount)
limited to the total amount brought into account in respect of the lease by
virtue of sub-paragraph (2) or (4).
     (11)
If lease A becomes a long funding lease by virtue of section 70H of CAA 2001
(and does not cease to be such a lease), treat this paragraph as never having
applied in relation to lease B.
     (12)
Chapter 6A of Part 2 of CAA 2001 (interpretation of provisions about long
funding leases) applies in relation to this paragraph.
Plant and machinery allowances: anti-avoidance
12    (1)
Chapter 17 of Part 2 of CAA 2001 (plant and machinery allowances: anti-
avoidance) is amended as follows.
      (2)
For section 228A substitute—
“228A
Application of sections 228B and 228C
(1)
Sections 228B and 228C apply where plant or machinery is the
subject of a lease and finance leaseback.
(2)
Plant or machinery is the subject of a lease and finance leaseback if—
(a)
a person (“S”) leases the plant or machinery to another (“B”),
(b)
after the date of that transaction, the use of the plant or
machinery falls within sub-paragraph (i), (ii) or (iii) of section
221(1)(b), and
(c)
it is directly as a consequence of having been leased under a
finance lease that the plant or machinery is available to be so
used after that date.
(3)
For the purposes of subsection (2), S leases the plant or machinery to
B only if—
(a)
S grants B rights over the plant or machinery,
(b)
consideration is given for that grant, and
(c)
S is not required to bring all of that consideration into account
under this Part.”
      (3)
In section 228B (lessee’s income or profits: deductions)—
(a)
in subsection (1), for “the lessee’s” substitute “S’s”,
(b)
in subsection (2), for the words from “the total” to the end substitute
“the amount of the finance charges shown in the accounts.”,
(c)
in subsection (4), in the definition of “Original Consideration”, for
“entering into the relevant transaction” substitute “granting B rights
over the plant or machinery”, and
(d)
the heading accordingly becomes “S’s income or profits:
deductions”.
      (4)
In section 228C (lessee’s income or profits: termination of leaseback)—
(a)
in subsection (2), for “the lessee” substitute “S”,
(b)
in subsection (3), in the formula, for “Net” substitute “Original” and
for the definition of “Net Consideration” substitute—
““Original Consideration” means the consideration
payable to S for granting B rights over the plant or
machinery,”,

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Schedule 20 — Leases of plant or machinery
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(c)
in subsection (6), for “the lessee’s” substitute “S’s” and for “the
lessor” substitute “B (or, where appropriate, an assignee of B)”, and
(d)
the heading accordingly becomes “S’s income or profits:
termination of leaseback”.
      (5)
Omit—
(a)
section 228D (lessor’s income or profits),
(b)
section 228E (lessor’s income or profits: termination of leaseback),
and
(c)
section 228F (lease and finance leaseback).
      (6)
In section 228G (leaseback not accounted for as finance lease in accounts of
lessee)—
(a)
in subsection (1), for “the lessee” substitute “S”,
(b)
in subsection (2), for “the lessee” (in both places) substitute “S”,
(c)
in subsection (3), for “the lessee’s” substitute “S’s”,
(d)
in subsection (4), for “the lessee” substitute “S”,
(e)
in subsection (6), for “the lessee” substitute “S” and for the words
from “increased by—” to the end substitute “increased by the
consideration payable to S for granting B rights over the plant or
machinery.”, and
(f)
the heading accordingly becomes “Leaseback not accounted for as
finance lease in S’s accounts”.
      (7)
Section 228H (sections 228A to 228G: supplementary) is amended as follows.
      (8)
In subsection (1)—
(a)
insert (as the first defined term)—
““consideration” does not include rentals;”,
(b)
omit the definition of “lessee”,
(c)
in the definition of “net book value”, for “the lessee’s” substitute
“S’s”,
(d)
omit the definition of “restricted disposal value”,
(e)
before the definition of “termination” insert—
““S” does not include an assignee of S;”, and
(f)
in the definition of “termination”, omit “(except in section 228E)”, for
“the lessee’s” (in both places) substitute “S’s” and for “the lessee”
substitute “S”.
      (9)
After that subsection insert—
“(1A)
For the purposes of sections 228A to 228G, references to
consideration given (or payable to S) for the grant to B of rights over
the plant or machinery do not include—
(a)
rentals payable under that grant, or
(b)
any relevant capital payment (within the meaning of section
785B of ICTA or section 809ZA of ITA 2007) to which either
of those sections applies.
(1B)
In relation to a case where some but not all of the consideration
mentioned in subsection (1A) falls within paragraph (b) of that
subsection, sections 228B to 228G or section 228J have effect subject
to such modifications as are just and reasonable.”