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 4 — Sales of lessors: leasing business carried on by a company in partnership
207

(6)
For the purposes of this Chapter, plant or machinery is “qualifying leased plant
or machinery”, in relation to the partnership, if—
(a)
expenditure is incurred (or treated as incurred) by the partnership on
the provision of the plant or machinery wholly or partly for the
purposes of the business,
5
(b)
the partnership would be (or would at any time have been) entitled, on
the assumptions in subsection (7), to an allowance under Part 2 of CAA
2001 in respect of that expenditure, and
(c)
at any time in the period of 12 months ending with the relevant day the
plant or machinery has been subject to a plant or machinery lease which
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is not an excluded lease of background plant or machinery for a
building (see section 437(3)).
(7)
The assumptions are—
(a)
that sections 34A and 70A of CAA 2001 (lessees, and not lessors, under
long funding leases to be entitled to capital allowances) are ignored,
15
and
(b)
that any claim that could be made for an allowance under Part 2 of that
Act is made.
411
“Relevant plant or machinery value” for condition A in section 410
(1)
This section applies for the purposes of condition A in section 410.
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(2)
The relevant plant or machinery value is the sum of the amounts in subsection
(3), but subject to section 413 (relevant plant or machinery value where
partnership lessee under long funding lease).
(3)
The amounts are—
(a)
the amounts (if any) that would be shown in respect of plant or
25
machinery in the appropriate balance sheet of the partnership drawn
up as at the start of the relevant day, and
(b)
the amounts (if any) that would be shown in the appropriate balance
sheet of the partnership drawn up as at the end of the relevant day in
respect of relevant transferred plant or machinery.
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(4)
For the purposes of subsection (3)(b) plant or machinery is “relevant
transferred plant or machinery” if an amount in respect of it would be shown
in the appropriate balance sheet of any company mentioned in subsection (5)
drawn up as at the start of the relevant day.
(5)
Those companies are—
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(a)
the partner company,
(b)
any company which is an associated company of the partner company
on the relevant day (see section 430),
(c)
any other corporate partner in relation to whose interest in the business
there is a qualifying change on the relevant day,
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(d)
any other corporate partner in relation to which there is a qualifying
change of ownership on the relevant day, and
(e)
any company which is an associated company of any other corporate
partner mentioned in paragraph (c) or (d) on the relevant day.
(6)
For the purposes of subsection (5) “any other corporate partner” means a
45
company which—
(a)
carries on the business at the start of the relevant day, and

Corporation Tax Bill
Part 9 — Leasing plant or machinery
Chapter 4 — Sales of lessors: leasing business carried on by a company in partnership
208

(b)
is within the charge to corporation tax in respect of the business.
(7)
This section is supplemented by section 412.
412
Provision supplementing section 411
(1)
For the purposes of section 411 and this section the amounts shown in the
appropriate balance sheet of the partnership or, as the case may be, any
5
company in respect of any plant or machinery are—
(a)
the amounts shown in that balance sheet as the net book value (or
carrying amount) in respect of the plant or machinery, and
(b)
the amounts shown in that balance sheet as the net investment in
respect of finance leases of the plant or machinery.
10
(2)
If—
(a)
any of the plant or machinery is a fixture in any land (see section
437(5)), and
(b)
the amount which falls (or would fall) to be shown in an appropriate
balance sheet as the net book value (or carrying amount) of the land
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includes (or would include) an amount in respect of the fixture,

the amount of the net book value (or carrying amount) in respect of the fixture
is determined on a just and reasonable basis.
(3)
If—
(a)
any of the plant or machinery is subject to a finance lease (see section
20
437(4)), and
(b)
any land or other asset which is not plant or machinery is subject to that
lease,

the amount of the net investment in respect of the finance lease of that plant or
machinery is determined on a just and reasonable basis.
25
(4)
In section 411 and this section any reference to any amount shown in the
appropriate balance sheet of the partnership or a company is to the amount
which, on the assumptions in subsection (5), falls (or would fall) to be shown
in a balance sheet of the partnership or, as the case may be, the company.
(5)
The assumptions are that—
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(a)
the balance sheet is drawn up in accordance with generally accepted
accounting practice, and
(b)
if the partnership acquired any plant or machinery in circumstances in
which this paragraph applies, the plant or machinery had been
acquired for an amount equal to its market value as at the relevant day.
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(6)
Paragraph (b) of subsection (5) applies if—
(a)
the relevant day falls on or after 22 March 2006,
(b)
the plant or machinery was acquired directly or indirectly from a
person who was connected with the partnership when the acquisition
took place, and
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(c)
either the acquisition took place on or after 5 December 2005 or the
person from whom the plant or machinery was so acquired was also
connected with the partnership on that date.

Corporation Tax Bill
Part 9 — Leasing plant or machinery
Chapter 4 — Sales of lessors: leasing business carried on by a company in partnership
209

413
Relevant plant or machinery value where partnership lessee under long
funding lease etc
(1)
Any amount included in the amounts mentioned in section 411(2) in respect of
plant or machinery to which this section applies is to be deducted from the sum
mentioned in that section.
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(2)
But the market value as at the relevant day of any plant or machinery to which
this section applies is to be added to that sum or, if that sum is nil, is the
relevant plant or machinery value.
(3)
This section applies to plant or machinery if—
(a)
condition A or B is met at the start of the relevant day, or
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(b)
the plant or machinery is acquired by the partnership from any
company mentioned in section 411(5) on the relevant day and condition
A or B is met at the end of that day.
(4)
Condition A is that the partnership is the lessee of the plant or machinery
under a long funding finance lease or a long funding operating lease.
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(5)
Condition B is that the partnership is treated as the owner of the plant or
machinery under section 67 of CAA 2001 (hire purchase and similar contracts).
414
Partnership’s income for condition B in section 410
(1)
This section applies for the purposes of condition B in section 410.
(2)
The reference to the partnership’s income is to its income as calculated for
20
corporation tax purposes.
(3)
Any apportionment necessary to determine the amount of the partnership’s
income attributable to the period of 12 months ending with the relevant day is
to be made on a time basis.
(4)
But—
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(a)
that basis does not apply if it would work in an unjust or unreasonable
way in relation to any person, and
(b)
in that case the apportionment is to be made instead on a just and
reasonable basis.
(5)
The proportion of the income that derives from qualifying leased plant or
30
machinery is to be determined on a just and reasonable basis.
“Qualifying change” in company’s interest in a business
415
“Qualifying change” in company’s interest in a business
(1)
For the purposes of the sales of lessors Chapters there is a qualifying change in
a company’s interest in a business on any day if its relevant percentage share
35
at the end of the day is less than its relevant percentage share at the start of the
day.
(2)
In this section “relevant percentage share”, in relation to a company’s interest
in a business, means its percentage share in the profits or loss of the business
(determined in accordance with section 416).
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Corporation Tax Bill
Part 9 — Leasing plant or machinery
Chapter 4 — Sales of lessors: leasing business carried on by a company in partnership
210

(3)
For the purposes of this section any reference to a company’s share in the
profits or loss of the business includes a nil share (whether as a result of the
dissolution of the partnership or otherwise).
416
Determining the percentage share in the profits or loss of business
(1)
For the purposes of this Chapter a company’s percentage share in the profits
5
or loss of a business at any time is determined on a just and reasonable basis.
(2)
In making that determination, regard must be had, in particular, to any matter
that would be taken into account in determining under section 1262 of CTA
2009 (but without regard to sections 1263 and 1264 of that Act) the company’s
share at that time in the profits or loss of the business.
10
Qualifying changes in partner company’s interest in business
417
Partner company’s income and other companies’ matching expense
(1)
This section applies if on any day (“the relevant day”)—
(a)
the partner company carries on a business of leasing plant or
machinery in partnership with other persons,
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(b)
the partner company is within the charge to corporation tax in respect
of the business, and
(c)
there is a qualifying change in the partner company’s interest in the
business on the relevant day (see sections 415 and 416).
(2)
On the relevant day—
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(a)
the partner company is treated as receiving an amount of income, and
(b)
any other company which carries on the business on that day and
which is within the charge to corporation tax in respect of the business
is treated as incurring an expense.
(3)
The income—
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(a)
is treated as a receipt of the partner company’s notional business (see
subsection (6)), and
(b)
is brought into account in calculating for corporation tax purposes the
profits of that business for the accounting period in which it is treated
as received.
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(4)
Except where subsection (5) applies, the expense—
(a)
is treated as an expense of the other company’s notional business, and
(b)
is allowed as a deduction in calculating for corporation tax purposes
the profits of that business for the accounting period in which it is
treated as incurred.
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(5)
If at the end of the relevant day the other company is the only person carrying
on the business, the expense—
(a)
is treated as an expense incurred by the other company in its carrying
on of the business (at a time when it is the only person carrying it on),
and
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(b)
is allowed as a deduction in calculating for corporation tax purposes
the profits of the business for the accounting period in which it is
treated as incurred.

Corporation Tax Bill
Part 9 — Leasing plant or machinery
Chapter 4 — Sales of lessors: leasing business carried on by a company in partnership
211

(6)
In this Chapter a company’s “notional business” means the business the profits
or losses of which are determined, in relation to the company, under section
1259 of CTA 2009 (calculation of firm’s profits and losses).
(7)
This section is supplemented by sections 418 and 419.
(8)
This section is subject to section 420 (exception: companies carrying on
5
business ceasing to share in its profits).
418
Amount of income and expense
(1)
The amount of the income under section 417 is calculated in accordance with
sections 421 to 423.
(2)
The amount of the expense of the other company under section 417 is
10
calculated in accordance with section 424.
419
Relief for expense otherwise giving rise to carried forward loss
(1)
This section applies if—
(a)
a company is treated under section 417(5) as incurring an expense in an
accounting period of the company (“period 1”),
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(b)
the company makes a loss in period 1 or a later accounting period,
(c)
apart from this section some or all of that loss (“the carried forward
loss”) would be carried forward to the next accounting period of the
company after the accounting period in which the loss is made (“the
subsequent period”),
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(d)
some or all of the carried forward loss (“the derived loss”) derives
from—
(i)
the expense under section 417(5), or
(ii)
an expense treated as arising under subsection (2) and allowed
as a deduction for the accounting period in which the loss is
25
made, and
(e)
the subsequent period starts within the period of 5 years beginning
with the relevant day within the meaning of section 417 and does not
start as a result of section 383 or 425.
(2)
Instead of being so carried forward, the derived loss is to be treated for
30
corporation tax purposes as giving rise to an expense of an amount equal to—


where—
DL is the derived loss,
D is the number of days in the accounting period in which the loss is
made, and
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R is the percentage rate applicable to section 826 of ICTA under section
178 of FA 1989.
(3)
The amount of the expense under this section is allowed as a deduction in
calculating for corporation tax purposes the profits of the business for the
subsequent period.
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Corporation Tax Bill
Part 9 — Leasing plant or machinery
Chapter 4 — Sales of lessors: leasing business carried on by a company in partnership
212

(4)
For the purpose of determining how much of a loss derives from an expense
under section 417(5) or an expense within subsection (1)(d)(ii), the loss is to be
calculated on the basis that that expense is the final amount to be deducted.
420
Exception: companies carrying on business ceasing to share in its profits
(1)
Section 417 does not apply if conditions A, B and C are met.
5
(2)
Condition A is that at the end of the relevant day none of the companies by
which the business was carried on any longer has any share in the profits or
loss of the business.
(3)
Condition B is that, in consequence of what happens on the relevant day, the
disposal value of all the plant and machinery that was used for the purposes of
10
the business and in respect of which capital allowances have been claimed is to
be brought into account under section 61 of CAA 2001.
(4)
Condition C is that the disposal value to be brought into account in relation to
all the plant or machinery is the price that the plant or machinery would fetch
in the open market on that day.
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421
The amount of the income: the basic amount
(1)
This section determines the amount of the income under section 417 when a
qualifying change in the interest of the partner company in a business of
leasing plant or machinery occurs on any day (“the relevant day”).
(2)
The amount of the income is found by—
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(a)
applying the formula in subsection (3) to give the basic amount, and
(b)
making such adjustment to the basic amount as is required in
accordance with section 422 or 423.
(3)
The formula is—

(4)
In this section “PM” has the meaning given by section 400, but—
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(a)
reading any reference in that section to the relevant company as a
reference to the partnership, and
(b)
reading the reference in section 400(4) to an associated company as a
reference to a qualifying company (see subsection (7)).
(5)
In this section “TWDV” means the sum of—
30
(a)
the total amount of unrelieved qualifying expenditure in single asset
pools for the new chargeable period that would be carried forward in
the pools from the old chargeable period under section 59 of CAA 2001
(unrelieved qualifying expenditure),
(b)
the total amount of unrelieved qualifying expenditure in class pools for
35
the new chargeable period that would be carried forward in the pools
from the old chargeable period under that section, and
(c)
the amount of unrelieved qualifying expenditure in the main pool for
the new chargeable period that would be carried forward in the pool
from the old chargeable period under that section.
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(6)
For the purposes of subsection (5)—

Corporation Tax Bill
Part 9 — Leasing plant or machinery
Chapter 4 — Sales of lessors: leasing business carried on by a company in partnership
213

(a)
it is to be assumed that the chargeable period (within the meaning of
CAA 2001) of the partnership ends on the relevant day (“the old
chargeable period”) and a new one begins on the following day (“the
new chargeable period”), and
(b)
expenditure incurred by the partnership in acquiring plant or
5
machinery on the relevant day is to be left out of account unless it is
acquired from a qualifying company.
(7)
In this section “qualifying company” means each of the following—
(a)
the partner company,
(b)
any company which is an associated company of the partner company
10
on the relevant day,
(c)
any other corporate partner in relation to whose interest in the business
there is a qualifying change on the relevant day,
(d)
any other corporate partner in relation to which there is a qualifying
change of ownership on the relevant day, and
15
(e)
any company which is an associated company of any other corporate
partner mentioned in paragraph (c) or (d) on the relevant day.
(8)
For the purposes of subsection (7) “any other corporate partner” means a
company which—
(a)
carries on the business at the start of the relevant day, and
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(b)
is within the charge to corporation tax in respect of the business.
422
Amount to be nil if basic amount negative
If the basic amount given by the formula in section 421(3) is a negative amount,
the amount is taken instead to be nil.
423
Adjustment to the basic amount
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(1)
The amount of the company’s income under section 417 is limited to the
appropriate percentage of the basic amount.
(2)
The appropriate percentage is found by subtracting the company’s relevant
percentage share at the end of the day on which it is treated as receiving the
income from its relevant percentage share at the start of the day.
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(3)
In this section “relevant percentage share” has the same meaning as it has for
the purposes of section 415 (see subsection (2) of that section).
424
The amount of expense
(1)
This section applies if, as a result of a qualifying change in the partner
company’s interest in a business on any day—
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(a)
the company is treated as receiving an amount of income under section
417 on that day,
(b)
any other company is treated as incurring an expense under that
section on that day,
(c)
the other company’s percentage share in the profits or loss of the
40
business is greater at the end than at the start of that day, and
(d)
the increase (or any part of the increase) is wholly attributable to the
change in the partner company’s interest in the business.