Corporation Tax Bill

House of Commons

Session 2009 - 10
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Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 9 — Leasing plant or machinery
Chapter 2 — Long funding leases of plant or machinery
184

365
“Starting value” where plant or machinery originally unqualifying
(1)
This section applies if the conditions in subsection (2) are met in relation to a
long funding operating lease to which section 363 applies.
(2)
The conditions are that—
(a)
the lessor owns the plant or machinery as a result of having incurred
5
expenditure on its provision for purposes other than those of a
qualifying activity,
(b)
the plant or machinery is brought into use by the lessor for the purposes
of a qualifying activity on or after 1 April 2006, and
(c)
that qualifying activity is the leasing of the plant or machinery under
10
the lease.
(3)
For the purposes of section 363 the starting value is the lower of—
(a)
first use market value, and
(b)
first use amortised market value.
(4)
“First use market value” means the market value of the plant or machinery at
15
the time when it is first brought into use for the purposes of the qualifying
activity.
(5)
“First use amortised value” means the value that the plant or machinery would
have at the time when it is first brought into use for the purposes of the
qualifying activity on the assumptions in subsection (6).
20
(6)
The assumptions are that—
(a)
the cost of acquiring the plant or machinery had been written off on a
straight line basis over its remaining useful economic life, and
(b)
any further capital expenditure incurred had been written off on a
straight line basis over so much of its remaining economic life as
25
remains at the time when the expenditure is incurred.
(7)
For the meaning of “qualifying activity”, “remaining useful economic life” and
writing off on a straight line basis, see section 381(4), (3)(i) and (5) respectively.
366
Long funding operating lease: lessor’s additional expenditure
(1)
This section applies if in any period of account—
30
(a)
a company is the lessor of any plant or machinery under a long funding
operating lease,
(b)
the company incurs capital expenditure in relation to the plant or
machinery (the “additional expenditure”), and
(c)
the additional expenditure is not reflected in the market value of the
35
plant or machinery at the commencement time (see subsection (7)).
(2)
An additional deduction is allowed in calculating the profits of the company
for each period of account—
(a)
which ends after the incurring of the additional expenditure, and
(b)
in which the company is the lessor of the plant or machinery under the
40
lease.
(3)
The amount of the deduction is so much of the expected reduction in value of
the additional expenditure (“the expected reduction”) as is attributable to the
period of account.

Corporation Tax Bill
Part 9 — Leasing plant or machinery
Chapter 2 — Long funding leases of plant or machinery
185

(4)
The expected reduction is the amount of the additional expenditure, less the
remaining residual value of the plant or machinery resulting from that
expenditure.
(5)
For how to determine that remaining residual value, see—
(a)
section 367 (determination of remaining residual value resulting from
5
lessor’s first additional expenditure), and
(b)
section 368 (determination of remaining residual value resulting from
lessor’s further additional expenditure).
(6)
The amount of the expected reduction attributable to the period of account is
found by apportioning that reduction on a time basis according to the
10
proportion of the term of the lease that falls in the period of account.
(7)
In this section “the commencement time” means—
(a)
except where section 365 applies, the commencement of the term of the
lease, and
(b)
if that section applies, the time when the plant or machinery is first
15
brought into use by the lessor for the purposes of the qualifying
activity.
367
Determination of remaining residual value resulting from lessor’s first
additional expenditure
(1)
This section sets out how the remaining residual value of the plant or
20
machinery resulting from the additional expenditure (“RRV”) is determined
for the purposes of section 366(4) if section 366 has not applied in relation to
any previous additional expenditure incurred by the company in relation to
the leased plant or machinery.
(2)
RRV depends on whether—
25
(a)
the amount (“ARV”) which is expected to be the residual value of the
plant or machinery at the time when the additional expenditure is
incurred, exceeds
(b)
the amount (“CRV”) which at the commencement of the term of the
lease is expected to be its residual value (or, if section 365 applies,
30
would have been expected to be that value had that value been
estimated at that time).
(3)
If ARV exceeds CRV, RRV is the part of the excess that is a result of the
additional expenditure.
(4)
Otherwise, RRV is nil.
35
(5)
For the meaning of “residual value”, see section 381(4).
368
Determination of remaining residual value resulting from lessor’s further
additional expenditure
(1)
This section sets out how the remaining residual value of the plant or
machinery resulting from the additional expenditure (“RRV”) is determined
40
for the purposes of section 366(4) if section 366 has applied in relation to
previous additional expenditure incurred by the company in relation to the
leased plant or machinery.
(2)
RRV depends on whether—

Corporation Tax Bill
Part 9 — Leasing plant or machinery
Chapter 2 — Long funding leases of plant or machinery
186

(a)
the amount which is expected to be the residual value of the plant or
machinery at the time when the further additional expenditure is
incurred (“FARV”), exceeds
(b)
the sum of the amounts in subsection (3).
(3)
Those amounts are—
5
(a)
the amount which at the commencement of the term of the lease is
expected to be the residual value of the plant or machinery (or, if
section 365 applies, would have been expected to be that value had that
value been estimated at that time), and
(b)
any amounts that were subtracted under section 366(4) as the
10
remaining residual value of the plant or machinery resulting from the
previous additional expenditure.
(4)
If FARV exceeds the sum of the amounts in subsection (3), RRV is the portion
of the excess that is a result of the further additional expenditure.
(5)
Otherwise, RRV is nil.
15
(6)
For the meaning of “residual value”, see section 381(4).
369
Lessor under long funding operating lease: termination of lease
(1)
This section applies in calculating the profits of a company for corporation tax
purposes if it is the lessor immediately before the termination of a long funding
operating lease.
20
(2)
If the termination amount (see section 381(3)(l)) exceeds the sum of the
amounts in subsection (3), an amount equal to the excess is treated as income
of the company attributable to the lease arising in the period of account in
which it terminates.
(3)
The amounts referred to in subsection (2) are—
25
(a)
the total amounts paid to the lessee that are calculated by reference to
the termination value (see section 381(3)(m)),
(b)
the excess relevant value for section 363 (see subsection (6)), and
(c)
the excess expenditure for section 366 (see subsection (7)).
(4)
If the sum of the amounts in subsection (3) exceeds the termination amount, the
30
excess is treated as a revenue expense incurred by the company in connection
with the lease in the period of account in which it terminates.
(5)
No deduction is allowed in respect of any sums within subsection (3)(a).
(6)
“The excess relevant value for section 363” is the amount (if any) by which—
(a)
the starting value of the plant or machinery for the purposes of section
35
363(4) (lessor under long funding operating lease: periodic deduction),
exceeds
(b)
the total of the deductions allowable under section 363 for periods of
account for the whole or part of which the company was the lessor.
(7)
“The excess expenditure for section 366” is the amount (if any) by which—
40
(a)
the total of any amounts of capital expenditure incurred by the
company which constitute additional expenditure in the case of the
lease for the purposes of section 366 (long funding operating lease:
lessor’s additional expenditure), exceeds

Corporation Tax Bill
Part 9 — Leasing plant or machinery
Chapter 2 — Long funding leases of plant or machinery
187

(b)
the total of any deductions allowable under section 366 for periods of
account for the whole or part of which the company was the lessor.
Cases where sections 360 to 369 do not apply
370
Plant or machinery held as trading stock
(1)
Sections 360 to 369 do not apply in relation to a long funding lease in the case
5
of a company which is or has been the lessor of any plant or machinery under
the lease if the condition in subsection (2) 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 allowable as a deduction (apart from sections 360 to 369) in
10
calculating its profits or losses for corporation tax purposes, 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
15
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.
20
371
Adjustments where sections 360 to 369 subsequently disapplied by section
370
(1)
This section applies if—
(a)
at any time any of sections 360 to 369 has applied for determining the
amounts to be taken into account in calculating the profits or losses of
25
a company for corporation tax purposes, and
(b)
subsequently the condition in section 370(2) is met.
(2)
If this section applies—
(a)
the amounts mentioned in subsection (1)(a), and
(b)
any other amounts which, as a result of section 370, are to be taken into
30
account in calculating the profits or losses of the company for
corporation tax purposes,

are subject to such adjustments as are just and reasonable.
(3)
All such assessments and adjustments of assessments are to be made as are
necessary to give effect to this section.
35
372
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”),
(b)
lease A is not a long funding lease,
40
(c)
the company enters into a lease (“lease B”) of any of that plant or
machinery (as lessor), and

Corporation Tax Bill
Part 9 — Leasing plant or machinery
Chapter 2 — Long funding leases of plant or machinery
188

(d)
lease B is a long funding lease.
(2)
Sections 360 to 369 do not apply in relation to lease B.
(3)
This section must be treated as never having applied in relation to lease B if
lease A—
(a)
becomes a long funding lease as a result of section 70H of CAA 2001
5
(tax return by lessee treating lease as long funding lease), and
(b)
has not ceased to be such a lease.
373
Other avoidance
(1)
Sections 360 to 369 do not apply in relation to a long funding lease in the case
of a company which is or has been the lessor of any plant or machinery under
10
the lease if conditions A, B and C are met.
(2)
Condition A is that the lease forms part of any arrangement entered into by the
company which includes one or more other transactions.
(3)
Condition B is that the main purpose, or one of the main purposes, of the
arrangement is to secure that, over the lease period, there would be a
15
substantial difference between the GAAP total and the tax total.
(4)
“The GAAP total” means the sum of the amounts under the arrangement
which are, in accordance with generally accepted accounting practice—
(a)
recognised in determining the company’s profit or loss for any period,
or
20
(b)
taken into account in calculating the amounts which are so recognised.
(5)
“The tax total” means the sum of the amounts under the arrangement which
would (apart from this section) be taken into account in calculating the profits
or losses of the company for corporation tax purposes.
(6)
Condition C is that the difference referred to in subsection (3) would be
25
attributable (wholly or partly) to the application of any of sections 360 to 369 in
relation to the company by reference to the plant or machinery under the lease.
(7)
This section is supplemented by sections 374 and 375.
374
Provision supplementing section 373
(1)
It does not matter whether the arrangement referred to in condition A in
30
section 373(2) is entered into before, after or at the inception of the long funding
lease.
(2)
It does not matter whether the parties to any transaction which forms part of
that arrangement differ from the parties to any of the other transactions.
(3)
The cases in which two or more transactions are to be taken as forming part of
35
an arrangement for the purposes of section 373 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
40
taken the same form or been on the same terms.

Corporation Tax Bill
Part 9 — Leasing plant or machinery
Chapter 2 — Long funding leases of plant or machinery
189

(4)
For the purposes of condition B in section 373(3) “the lease period” means the
period which—
(a)
begins with the inception of the lease, and
(b)
ends with the end of the term of the lease.
(5)
The reference in section 373(4) to an amount being recognised in determining
5
a company’s profit or loss for a period is to an amount being recognised for
accounting purposes in—
(a)
the company’s profit and loss account, income statement or statement
of comprehensive income for that period,
(b)
the company’s statement of total recognised gains and losses,
10
statement of recognised income and expense, statement of changes in
equity or statement of income and retained earnings for that period, or
(c)
any other statement of items taken into account in calculating the
company’s profits or losses for that period.
375
Adjustments where sections 360 to 369 subsequently disapplied by section
15
373
(1)
This section applies if—
(a)
at any time any of sections 360 to 369 has applied for determining the
amounts to be taken into account in calculating the profits or losses of
the company for corporation tax purposes, and
20
(b)
subsequently conditions A, B and C in section 373 are met.
(2)
If this section applies—
(a)
the amounts mentioned in subsection (1)(a), and
(b)
any other amounts which, as a result of section 373, are to be taken into
account in calculating the profits or losses of the company for
25
corporation tax purposes,

are subject to such adjustments as are just and reasonable.
(3)
All such assessments and adjustments of assessments are to be made as are
necessary to give effect to this section.
376
Films
30
(1)
If a company is or has been a lessor under a long funding lease of a film,
sections 360 to 369 do not apply in respect of the lease.
(2)
“Film” has the same meaning as in Part 15 of CTA 2009 (see section 1181 of that
Act).
Lessees under long funding finance leases
35
377
Lessee under long funding finance lease: limit on deductions
(1)
This section applies if a company is the lessee of any plant or machinery under
a long funding finance lease for the whole or part of any period of account.
(2)
In calculating the company’s profits for the period of account for corporation
tax purposes, the amount deducted in respect of amounts payable under the
40
lease must not exceed the finance charges.

Corporation Tax Bill
Part 9 — Leasing plant or machinery
Chapter 2 — Long funding leases of plant or machinery
190

(3)
In subsection (2) “the finance charges” means the amounts which, in
accordance with generally accepted accounting practice, fall (or would fall) to
be shown in the company’s accounts as finance charges in respect of the lease.
(4)
If the lease is one which, in accordance with such practice, falls (or would fall),
to be treated as a loan, subsections (2) and (3) apply as if the lease were one
5
which, in accordance with such practice, fell to be treated as a finance lease.
378
Lessee under long funding finance lease: termination
(1)
This section applies if—
(a)
a company is or has been the lessee under a long funding finance lease,
and
10
(b)
in connection with the termination of the lease, a payment calculated by
reference to the termination value falls to be made to the company.
(2)
The payment is not to be brought into account in determining the profits of the
company for any period of account for corporation tax purposes.
(3)
Subsection (2) does not affect the amount of any disposal value that falls to be
15
brought into account by the company under CAA 2001.
(4)
For the meaning of “termination value”, see section 381(3)(m).
Lessees under long funding operating leases
379
Lessee under long funding operating lease
(1)
This section applies if a company is the lessee of any plant or machinery under
20
a long funding operating lease for the whole or part of any period of account.
(2)
The deductions allowed in calculating the profits of the company for the period
of account for corporation tax purposes are reduced.
(3)
The amount of the reduction is so much of the expected gross reduction in
value over the term of the lease as is attributable to the period of account.
25
(4)
The expected gross reduction in value over the term of the lease is the starting
value of the plant or machinery, less its expected end value.
(5)
For the meaning of “starting value”, see section 380.
(6)
The expected end value of plant or machinery is the amount which—
(a)
at the commencement of the term of the lease is expected to be its
30
market value at the end of the term, or
(b)
if section 380(3) applies, would have been expected to be that value had
that value been estimated at the commencement of the term.
(7)
The expected gross reduction in value over the term of the lease that is
attributable to the period of account is found by apportioning that reduction
35
on a time basis according to the proportion of the term of the lease that falls in
the period of account.
380
“Starting value” in section 379
(1)
This section is about the meaning of “starting value” in section 379 in relation
to a long funding operating lease (“the section 379 lease”).
40