Finance Bill

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Session 2008 - 09
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Finance Bill

Finance Bill
Schedule 32 — Leases of plant or machinery
268

Schedule 32
Section 63

Leases of plant or machinery
Disposal values: commencement of long funding finance leases
1     (1)
Section 61 of CAA 2001 (disposal events and disposal values) is amended as
follows.
5
      (2)
In the Table in subsection (2), for item 5A substitute—

“5A.
Commencement of the
The greater of—

term of a long funding
(a)
the market value

finance lease of the plant
of the plant or

or machinery.
machinery at the

10

commencement of

the term of the

lease, and

(b)
the qualifying

lease payments.”

15
      (3)
After subsection (5) insert—
“(5A)
In item 5A of the Table “qualifying lease payments” means the
minimum payments under the lease (including any initial payment),
excluding the following—
(a)
so much of any payment as, under generally accepted
20
accounting practice, falls (or would fall) to be treated as the
gross return on investment in respect of the lease,
(b)
so much of any payment as represents charges for services,
and
(c)
so much of any payment as represents qualifying UK or
25
foreign tax (within the meaning of section 70YE) to be paid by
the lessor.”
      (4)
Omit subsections (6) to (9).
2
Accordingly, in FA 2008, in Schedule 20, omit paragraph 4.
3     (1)
Section 25A of TCGA 1992 (long funding leases of plant or machinery:
30
deemed disposals) is amended as follows.
      (2)
In subsection (2)(a), for “the value described in subsection (4)(a) or (b)”
substitute “the relevant disposal value”.
      (3)
For subsections (4) to (4D) substitute—
“(4)
“Relevant disposal value” means—
35
(a)
in relation to a long funding finance lease, the disposal value
described in item 5A of the table in section 61(2) of the Capital
Allowances Act (disposal values), and
(b)
in relation to a long funding operating lease, the disposal
value described in item 5B of that table.”
40
      (4)
In subsection (5), omit ““market value”,”.

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Schedule 32 — Leases of plant or machinery
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4
Accordingly, in FA 2008, in Schedule 20, omit paragraph 5.
5     (1)
The amendments made by paragraphs 1 and 2 have effect in relation to
leases whose inception is on or after 13 November 2008.
      (2)
The amendments made by paragraphs 3 and 4 have effect in relation to
leases whose inception is on or after 22 April 2009.
5
Disposal values: termination etc of long funding leases
6
In section 66 of CAA 2001 (list of provisions outside Chapter 5 of Part 2 of
that Act about disposal values), in the list, insert at the appropriate place—

“section 70E
long funding leases: disposal

events and disposal values”.

10
7     (1)
Section 70E of CAA 2001 (long funding leases: disposal events and disposal
values) is amended as follows.
      (2)
In subsection (1), for paragraph (c) substitute—
“(c)
a relevant event occurs.”
      (3)
After that subsection insert—
15
“(1A)
A relevant event occurs if—
(a)
the lease terminates,
(b)
the plant or machinery begins to be used wholly or partly for
purposes other than those of the qualifying activity, or
(c)
the qualifying activity is permanently discontinued.”
20
      (4)
In subsection (2)(a), for “termination of the lease” substitute “relevant
event”.
      (5)
For subsections (3) to (8) substitute—
“(2A)
The amount of the disposal value is—

where—
25
QE is the person’s qualifying expenditure on the provision of
the plant or machinery;
QA is the qualifying amount (see subsections (2B) to (2E));
R is any relevant rebate (see subsections (2F) and (2G)).
(2B)
In the case of a long funding operating lease, “the qualifying
30
amount” means the aggregate amount of the reductions made under
section 502K of ICTA or section 148I of ITTOIA 2005 for periods of
account in which the person was the lessee.
(2C)
In the case of a long funding finance lease, “the qualifying amount”
means the aggregate of—
35
(a)
the payments made to the lessor by the person under the
lease (including any initial payment), and
(b)
the payments made to the lessor by the person under a
guarantee of any residual amount (as defined in section
70YE),
40

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Schedule 32 — Leases of plant or machinery
270


subject to subsection (2D).
(2D)
The following are excluded from the “qualifying amount” under
subsection (2C)—
(a)
so much of any payment as, in accordance with generally
accepted accounting practice, falls (or would fall) to be
5
shown in the person’s accounts as finance charges in respect
of the lease,
(b)
so much of any payment as represents charges for services,
and
(c)
so much of any payment as represents qualifying UK or
10
foreign tax (within the meaning of section 70YE) to be paid by
the lessor.
(2E)
In the case of a long funding finance lease that is not a transaction at
arm’s length, “the qualifying amount” includes only so much of the
amounts described in subsection (2C) as would reasonably be
15
expected to have been paid if the lease had been such a transaction.
(2F)
“Relevant rebate” means—
(a)
in a case falling within subsection (1A)(a), any amount
calculated by reference to the termination value that is
payable for the benefit (directly or indirectly) of the person or
20
another person connected with that person, or
(b)
in a case falling within subsection (1A)(b) or (c), any such
amount that would have been so payable if, when the
relevant event occurred, the lease had terminated and the
plant or machinery had been sold for its market value at that
25
time.
(2G)
In the case of a lease that is not a transaction at arm’s length,
“relevant rebate” includes any amount that would reasonably be
expected to have fallen within subsection (2F) if the lease had been
such a transaction.
30
(2H)
The amount of the disposal value brought into account under this
section cannot be less than nil.”
      (6)
In subsection (9), for “termination of the lease” substitute “relevant event”.
8
The amendments made by paragraphs 6 and 7 have effect in relation to cases
where the relevant event occurs on or after 13 November 2008.
35
Capital receipts treated as income
9     (1)
Section 785C of ICTA (plant and machinery leases: capital receipts to be
treated as income: interpretation) is amended as follows.
      (2)
In subsection (6), for “subsection (9)” substitute “subsections (9) and (9A)”.
      (3)
In subsection (9)—
40
(a)
in paragraph (a), insert at the end “or”, and
(b)
omit paragraph (c) (and the “or” before it).
      (4)
After subsection (9) insert—
“(9A)
Where—

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Schedule 32 — Leases of plant or machinery
271

(a)
a capital payment is an initial payment under a long-funding
lease, and
(b)
under section 61 of the Capital Allowances Act (disposal
events and disposal values), the commencement of the term
of the lease is an event that requires the lessor to bring a
5
disposal value into account,

the capital payment is only “relevant” to the extent that it exceeds the
disposal value.”
(9B)
“Commencement”, “disposal value”, “initial payment”, “long
funding lease” and “the term” have the same meaning as in Part 2 of
10
the Capital Allowances Act.”
10    (1)
Section 809ZB of ITA 2007 (plant and machinery leases: capital receipts to be
treated as income: interpretation) is amended as follows.
      (2)
In subsection (6), for “subsection (9)” substitute “subsections (9) and (9A)”.
      (3)
In subsection (9)—
15
(a)
in paragraph (a), insert at the end “or”, and
(b)
omit paragraph (c) (and the “or” before it).
      (4)
After subsection (9) insert—
“(9A)
Where—
(a)
a capital payment is an initial payment under a long-funding
20
lease, and
(b)
under section 61 of CAA 2001 (disposal events and disposal
values), the commencement of the term of the lease is an
event that requires the lessor to bring a disposal value into
account,
25

the capital payment is only “relevant” to the extent that it exceeds the
disposal value.”
(9B)
“Commencement”, “disposal value”, “initial payment”, “long
funding lease” and “the term” have the same meaning as in Part 2 of
CAA 2001.”
30
11    (1)
The amendments made by paragraphs 9 and 10 have effect in relation to
payments made under leases whose inception is on or after 13 November
2008 (subject to sub-paragraph (2)).
      (2)
In relation to payments made under leases whose inception is before 22
April 2009, section 785C(9A) of ICTA and section 809ZB(9A) of ITA 2007
35
(inserted by this Schedule) have effect as if, for the words following
paragraph (b), there were substituted “the capital payment is not
“relevant””.
Transfer and long funding leaseback: restrictions on lessee’s allowances
12
In section 51A(10) of CAA 2001 (annual investment allowances), insert at the
40
appropriate place—

“section 70DA(2) (transfer and long funding leaseback: no
annual investment allowance for lessee),”.
13
In section 52(5) of CAA 2001 (first-year allowances), insert at the appropriate

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Schedule 32 — Leases of plant or machinery
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place—

“section 70DA(2) (transfer and long funding leaseback: no
first-year allowance for lessee),”.
14
In section 57(3) of CAA 2001 (available qualifying expenditure), insert at the
appropriate place—
5

“section 70DA (transfer and long funding leaseback);”.
15
In CAA 2001, after section 70D insert—
“70DA
Transfer and long funding leaseback: restrictions on lessee’s
allowances
(1)
This section applies where—
10
(a)
a person (“S”) transfers plant or machinery to another person
(“B”),
(b)
at any time after the date of the transfer, the plant or
machinery is available to be used by S, or a person (other than
B) who is connected with S (“CS”), under a plant or
15
machinery lease, and
(c)
that lease is a long funding lease.
(2)
No annual investment allowance or first-year allowance is to be
made in respect of the expenditure of S or CS under the lease.
(3)
The amount, if any, by which E exceeds D is to be left out of account
20
in determining the available qualifying expenditure of S or CS.
(4)
E is the capital expenditure of S or CS on the provision of the plant or
machinery under the long funding lease.
(5)
If S is required to bring a disposal value into account under this Part
because of the transfer referred to in subsection (1)(a), D is that
25
disposal value.
(6)
Otherwise, D is whichever of the following is the smallest—
(a)
the market value of the plant or machinery;
(b)
if S incurred capital expenditure on the provision of the plant
or machinery before the transfer referred to in subsection
30
(1)(a), the amount of that expenditure;
(c)
if a person connected with S incurred capital expenditure on
the provision of the plant or machinery before that transfer,
the amount of that expenditure.
(7)
Section 70Y(3) applies to references in this section to a transfer of
35
plant or machinery by a person.
(8)
For the purposes of this section, a transfer involving the grant of a
lease takes place on the commencement of the term of the lease.”
16
In section 70H of CAA 2001 (lessee: requirement for tax return treating lease
as long funding lease), after subsection (1B) insert—
40
“(1C)
In a case in which paragraphs (a) and (b) of subsection (1) of section
70DA (leaseback of plant or machinery) are satisfied, subsection (1)
of this section does not apply to the lease referred to in section
70DA(1)(b).”

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Schedule 32 — Leases of plant or machinery
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17
The amendments made by paragraphs 12 to 16 have effect in relation to
cases where the commencement of the term of the lease referred to in
subsection (1)(b) of section 70DA of CAA 2001 is on or after 13 November
2008.
Transfer followed by hire-purchase etc: restrictions on hirer’s allowances
5
18
In section 51A(10) of CAA 2001 (annual investment allowances), after
“218A” insert “, 229A(2)”.
19
In section 52(5) of CAA 2001 (first-year allowances), after “217” insert “,
229A(2)”.
20
In section 57(3) of CAA 2001 (available qualifying expenditure), after
10
“228(2)” insert “, 229A”.
21
In CAA 2001, after section 229 insert—
“229A
Transfer followed by hire-purchase etc: restrictions on hirer’s
allowances
(1)
This section applies where—
15
(a)
a person (“S”) transfers plant or machinery to another person
(“B”),
(b)
at any time after the date of the transfer, the plant or
machinery is available to be used by S, or a person (other than
B) who is connected with S (“CS”),
20
(c)
it is available to be so used under a contract which provides
that S or CS is to or may become the owner of the plant or
machinery on the performance of the contract, and
(d)
S or CS incurs capital expenditure on the provision of the
plant or machinery under that contract.
25
(2)
No annual investment allowance or first-year allowance is to be
made in respect of the expenditure of S or CS under the contract.
(3)
The amount, if any, by which E exceeds D is to be left out of account
in determining the available qualifying expenditure of S or CS.
(4)
E is the capital expenditure of S or CS on the provision of the plant or
30
machinery under the contract referred to in subsection (1)(c).
(5)
If S is required to bring a disposal value into account under this Part
because of the transfer referred to in subsection (1)(a), D is that
disposal value.
(6)
Otherwise, D is whichever of the following is the smallest—
35
(a)
the market value of the plant or machinery;
(b)
if S incurred capital expenditure on the provision of the plant
or machinery before the transfer referred to in subsection
(1)(a), the amount of that expenditure;
(c)
if a person connected with S incurred capital expenditure on
40
the provision of the plant or machinery before that transfer,
the amount of that expenditure.
(7)
Sections 214 and 215 do not apply in relation to the contract referred
to in subsection (1)(c).

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Schedule 33 — Long funding leases of films
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(8)
Section 70Y(3) applies to references in this section to a transfer of
plant or machinery by a person.
(9)
For the purposes of this section, a transfer involving the grant of a
lease takes place on the commencement of the term of the lease.”
22
The amendments made by paragraphs 18 to 21 have effect in relation to
5
cases where the contract referred to in subsection (1)(c) of section 229A of
CAA 2001 is entered into on or after 13 November 2008.
Finance leaseback
23
In section 216(1)(b)(i) of CAA 2001 (sale and leaseback etc), after “S” insert
“or by a person (other than B) who is connected with S”.
10
24
In section 221(1)(b)(i) of CAA 2001 (meaning of “sale and finance
leaseback”), for “a qualifying activity carried on by S” substitute “an activity
carried on by S or by a person (other than B) who is connected with S,”.
25
The amendment made by paragraph 23 has effect—
(a)
where the date of the transaction referred to in section 216(1)(a) of
15
CAA 2001 is on or after 22 April 2009, and
(b)
for the purposes of section 227 of that Act (which applies section
216(1)(b) of that Act), where the date of the transaction referred to in
section 227(1)(a) is on or after 22 April 2009.
26
The amendment made by paragraph 24 has effect—
20
(a)
where the date of the transaction referred to in section 221(1)(a) of
CAA 2001 is on or after 22 April 2009, and
(b)
for the purposes of section 228A of that Act (which applies section
221(1)(b) of that Act), where the date of the transaction referred to in
section 228A(2)(a) is on or after 22 April 2009.
25
Interpretation
27
In this Schedule “commencement” and “inception” have the meaning given
in section 70YI(1) of CAA 2001.
Schedule 33
Section 64

Long funding leases of films
30
1
In ICTA, after section 502GC insert—
“502GD
Cases where ss 502B to 502G do not apply: films
(1)
If a company is or has been a lessor under a long funding lease of a
film, sections 502B to 502G do not apply in respect of the lease.
(2)
“Film” has the same meaning as in Part 15 of the Corporation Tax Act
35
2009 (see section 1181 of that Act).”