Finance Bill

House of Commons

Session 2008 - 09
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Other Bills before Parliament

Finance Bill

Finance Bill
Schedule 31 — Sale of lessor companies etc: anti-avoidance
278

(b)
for paragraph (a) substitute—
“(a)
on the provision of which the company has not
incurred qualifying expenditure for the purposes
of Part 2 of CAA 2001,
(aa)
of which the company is the lessor under a long
5
funding lease, or”.
      (3)
For sub-paragraph (2) substitute—
    “(2)
For the purposes of paragraph 16 “PM” is the aggregate of the
amounts in sub-paragraph (2A), but subject to paragraph 17A.
     (2A)
The amounts are—
10
(a)
the amounts (if any) which would be shown in respect of
plant or machinery in the appropriate balance sheet of the
relevant company drawn up as at the start of the relevant
day, and
(b)
the amounts (if any) which would be shown in the
15
appropriate balance sheet of the relevant company drawn
up as at the end of the relevant day in respect of relevant
transferred plant or machinery.
     (2B)
For the purposes of sub-paragraph (2A)(b) plant or machinery is
“relevant transferred plant or machinery” if an amount in respect
20
of it would be shown in the appropriate balance sheet of an
associated company drawn up as at the start of the relevant day.”
      (4)
In sub-paragraph (3), for “this purpose” substitute “the purposes of this
paragraph”.
      (5)
In sub-paragraph (7)(a), omit “as at the start of the relevant day”.
25
Paragraph 17A
6
After paragraph 17 insert—
“17A  (1)
Where this paragraph applies in relation to any plant or
machinery—
(a)
any amount included in the aggregate mentioned in
30
paragraph 17(2) in respect of the plant or machinery is to
be deducted from that aggregate, and
(b)
the market value of the plant or machinery as at the
relevant day is to be added to that aggregate (or, if that
aggregate is nil, is to constitute PM).
35
      (2)
This paragraph applies in relation to plant or machinery if
condition A or B is met.
      (3)
Condition A is that—
(a)
the plant or machinery falls within sub-paragraph (4) at
the start of the relevant day, or
40
(b)
the plant or machinery falls within that sub-paragraph at
the end of the relevant day, having been acquired by the
relevant company from an associated company on that
day.

Finance Bill
Schedule 31 — Sale of lessor companies etc: anti-avoidance
279

      (4)
Plant or machinery falls within this sub-paragraph if the relevant
company—
(a)
is the lessee of the plant or machinery under a long funding
finance lease, or
(b)
is treated as the owner of the plant or machinery under
5
section 67 of CAA 2001 (hire purchase and similar
contracts).
      (5)
Condition B is that—
(a)
the relevant company is the lessee of the plant or
machinery under a long funding operating lease at the
10
start of the relevant day, or
(b)
the relevant company is the lessee of the plant or
machinery under such a lease at the end of the relevant day
and the plant or machinery was acquired by the relevant
company from an associated company on that day.”
15
Paragraph 22
7
In paragraph 22(2) (migration), for “owned by the company” substitute “in
respect of which an amount would be shown in a balance sheet of the
company drawn up immediately before the relevant day in accordance with
generally accepted accounting practice”.
20
Paragraph 40
8
Omit paragraph 40 (relationship of Schedule with section 228K of CAA
2001).
Paragraph 41
9
In paragraph 41 (definitions), after sub-paragraph (5) insert—
25
   “(5A)
“Long funding finance lease”, “long funding lease” and “long
funding operating lease” have the same meaning as in Part 2 of
CAA 2001 (see section 70YI of that Act).”
Paragraph 42
10
In paragraph 42 (index), in the table, after the entry relating to “fixture”
30
insert—

“long funding finance lease
paragraph 41

long funding lease
paragraph 41

long funding operating lease
paragraph 41”.

Consequential repeal
35
11
In FA 2007, in Schedule 6, omit paragraph 2(3).

Finance Bill
Schedule 32 — Leases of plant or machinery
280

Commencement
12
The amendments made by this Schedule have effect where the relevant day
is on or after 13 November 2008.
Schedule 32
Section 63

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

“5A.
Commencement of the
The greater of—

10

term of a long funding
(a)
the market value

finance lease of the plant
of the plant or

or machinery.
machinery at the

commencement of

the term of the

15

lease, and

(b)
the qualifying

lease payments.”

      (3)
After subsection (5) insert—
“(5A)
In item 5A of the Table “qualifying lease payments” means the
20
minimum payments under the lease (including any initial payment),
excluding the following—
(a)
so much of any payment as, under generally accepted
accounting practice, falls (or would fall) to be treated as the
gross return on investment in respect of the lease,
25
(b)
so much of any payment as represents charges for services,
and
(c)
so much of any payment as represents qualifying UK or
foreign tax (within the meaning of section 70YE) to be paid by
the lessor.”
30
      (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:
deemed disposals) is amended as follows.
      (2)
In subsection (2)(a), for “the value described in subsection (4)(a) or (b)”
35
substitute “the relevant disposal value”.
      (3)
For subsections (4) to (4D) substitute—
“(4)
“Relevant disposal value” means—

Finance Bill
Schedule 32 — Leases of plant or machinery
281

(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.”
5
      (4)
In subsection (5), omit ““market value”,”.
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
10
leases whose inception is on or after 22 April 2009.
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

15

events and disposal values”.

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.”
20
      (3)
After that subsection insert—
“(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
25
(c)
the qualifying activity is permanently discontinued.”
      (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—
30

where—
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)).
35
(2B)
In the case of a long funding operating lease, “the qualifying
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.

Finance Bill
Schedule 32 — Leases of plant or machinery
282

(2C)
In the case of a long funding finance lease, “the qualifying amount”
means the aggregate of—
(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
5
guarantee of any residual amount (as defined in section
70YE),

subject to subsection (2D).
(2D)
The following are excluded from the “qualifying amount” under
subsection (2C)—
10
(a)
so much of any payment as, in accordance with generally
accepted accounting practice, falls (or would fall) to be
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,
15
and
(c)
so much of any payment as represents qualifying UK or
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
20
arm’s length, “the qualifying amount” includes only so much of the
amounts described in subsection (2C) as would reasonably be
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
25
calculated by reference to the termination value that is
payable for the benefit (directly or indirectly) of the person or
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
30
relevant event occurred, the lease had terminated and the
plant or machinery had been sold for its market value at that
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
35
expected to have fallen within subsection (2F) if the lease had been
such a transaction.
(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”.
40
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.
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.
45
      (2)
In subsection (6), for “subsection (9)” substitute “subsections (9) and (9A)”.

Finance Bill
Schedule 32 — Leases of plant or machinery
283

      (3)
In subsection (9)—
(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—
5
(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
10
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
15
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)—
20
(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
25
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,
30

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.”
35
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
40
(inserted by this Schedule) have effect as if, for the words following
paragraph (b), there were substituted “the capital payment is not
“relevant””.

Finance Bill
Schedule 32 — Leases of plant or machinery
284

Transfer and long funding leaseback: restrictions on lessee’s allowances
12
In section 51A(10) of CAA 2001 (annual investment allowances), insert at the
appropriate place—

“section 70DA(2) (transfer and long funding leaseback: no
annual investment allowance for lessee),”.
5
13
In section 52(5) of CAA 2001 (first-year allowances), insert at the appropriate
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
10
appropriate place—

“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
15
(1)
This section applies where—
(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
20
B) who is connected with S (“CS”), under a plant or
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.
25
(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
machinery under the long funding lease.
(5)
If S is required to bring a disposal value into account under this Part
30
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—
(a)
the market value of the plant or machinery;
(b)
if S incurred capital expenditure on the provision of the plant
35
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
the provision of the plant or machinery before that transfer,
the amount of that expenditure.
40
(7)
Section 70Y(3) applies to references in this section to a transfer of
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.”