Corporation Tax Bill

House of Commons

Session 2009 - 10
Internet Publications
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
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(2)
Except where subsection (4) applies, the amount of the expense of the other
company is limited to the appropriate percentage of the amount of the income.
(3)
The appropriate percentage is—


where—
OCI is the increase in the other company’s percentage share in the profits
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or loss of the business that is wholly attributable to the change in the
partner company’s interest in the business, and
PCD is the decrease in the partner company’s percentage share in the
profits or loss of the business.
(4)
If section 417(5) applies (business carried on by the other company alone), the
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amount of the expense of the other company is equal to the amount of the
income.
(5)
For the purposes of this section any reference to an increase in the other
company’s percentage share in any profits or loss of the business includes an
increase from a nil share (whether as a result of its becoming a partner or
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otherwise).
Qualifying changes of ownership in relation to partner company
425
Partner company’s income and matching expense in different accounting
periods
(1)
This section applies if on any day (“the relevant day”)—
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(a)
a company carries on a business of leasing plant or machinery in
partnership with other persons (see sections 410 to 414),
(b)
the company is within the charge to corporation tax in respect of the
business, and
(c)
there is a qualifying change of ownership in relation to the company.
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(2)
On the relevant day—
(a)
the company is treated as receiving an amount of income, and
(b)
the accounting period of the company ends.
(3)
The income—
(a)
is treated as a receipt of the company’s notional business (see section
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417(6)), and
(b)
is brought into account in calculating for corporation tax purposes the
profits of that business for that accounting period.
(4)
On the day following the relevant day—
(a)
the company is treated as incurring an expense, and
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(b)
a new accounting period of the company begins.
(5)
The expense—
(a)
is treated as an expense of the company’s notional business, and

Corporation Tax Bill
Part 9 — Leasing plant or machinery
Chapter 4 — Sales of lessors: leasing business carried on by a company in partnership
215

(b)
is allowed as a deduction in calculating for corporation tax purposes
the profits of that business for that new accounting period.
(6)
This section is supplemented by sections 426 to 428.
426
Amount of income and expense
(1)
The amount of the income under section 425 is calculated in accordance with
5
section 429.
(2)
The amount of the expense under section 425 is the same as the amount of the
income.
427
No carry back of the expense
(1)
This section applies if the notional business carried on by the company is a
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trade carried on wholly or partly in the United Kingdom the profits of which
are chargeable to corporation tax under Chapter 2 of Part 3 of CTA 2009
(trading income).
(2)
No relief is to be given as a result of section 37(3)(b) (relief for trade losses
against total profits of earlier accounting periods) in respect of so much of any
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loss as derives from the expense.
(3)
For the purpose of determining how much of a loss derives from the expense,
the loss is to be calculated on the basis that the expense is the final amount to
be deducted.
428
Relief for expense otherwise giving rise to carried forward loss
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(1)
This section applies if—
(a)
there is a qualifying change of ownership in relation to a company on
any day (“the relevant day”),
(b)
on the following day the company is treated under section 425 as
incurring an expense of a business and an accounting period of the
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company (“period 1”) begins,
(c)
the company makes a loss in period 1 or a later accounting period,
(d)
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
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subsequent period”),
(e)
some or all of the carried forward loss (“the derived loss”) derives
from—
(i)
the expense under section 425, or
(ii)
an expense treated as arising under subsection (2) and allowed
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as a deduction for the accounting period in which the loss is
made, and
(f)
the subsequent period starts within the period of 5 years beginning
immediately after the relevant day and does not start as a result of
section 383 or 425.
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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
216

(2)
Instead of being so carried forward, the derived loss is to be treated for
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
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made, and
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
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subsequent period.
(4)
For the purpose of determining how much of the carried forward loss derives
from the expense under section 425 or an expense within subsection (1)(e)(ii),
the loss is to be calculated on the basis that that expense is the final amount to
be deducted.
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429
The amount of the income
(1)
This section determines the amount of the income under section 425 when a
qualifying change of ownership in relation to a company carrying on a
business of leasing plant or machinery in partnership with other persons
occurs on any day (“the relevant day”).
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(2)
The amount of the income is found by first—
(a)
applying the formula in section 421(3) to give the basic amount (as if the
company were “the partner company” mentioned in section 421), and
(b)
making any adjustment in accordance with any of sections 404 to 406 to
the basic amount.
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(3)
The amount is then limited to the appropriate percentage of the amount given
as a result of subsection (2).
(4)
If there is no qualifying change in the company’s interest in the business on the
relevant day, the appropriate percentage is the percentage share of the
company in the profits or loss of the business on the relevant day.
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(5)
If there is a qualifying change in the company’s interest in the business on the
relevant day, the appropriate percentage is the percentage share of the
company in the profits or loss of the business at the end of the relevant day.
Interpretation
430
“Associated company”
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(1)
This section gives the meaning of “associated company” for the purposes of
this Chapter.

Corporation Tax Bill
Part 9 — Leasing plant or machinery
Chapter 5 — Sales of lessors: anti-avoidance provisions
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(2)
A company is an “associated company” of another company on any day if, at
the start of that day—
(a)
one of the two has control of the other, or
(b)
both are under the control of the same person or persons.
(3)
Section 450 (meaning of “control” for the purposes of Part 10 (close
5
companies)) applies for the purposes of subsection (2).
(4)
Subsections (5) and (6) apply if, at the start of any day, a company (“the
consortium company”)—
(a)
is owned by a consortium, or
(b)
is a qualifying 90% subsidiary of a company owned by a consortium.
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(5)
If there is any qualifying change in the consortium company’s interest in a
business on that day, references to an associated company of the consortium
company on that day include—
(a)
any member of the consortium at the start of that day, and
(b)
any company which is an associated company of any such member on
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that day.
(6)
If there is any qualifying change of ownership in relation to the consortium
company on that day, but there is no qualifying change in its interest in a
business on that day, references to an associated company of the consortium
company on that day include—
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(a)
any relevant member of the consortium on that day, and
(b)
any company which is an associated company of any relevant member
of the consortium on that day.
(7)
For the purposes of subsection (6) a member of the consortium is a “relevant”
member on the day on which the qualifying change of ownership occurs if—
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(a)
it is a member of the consortium at the start of the day, and
(b)
the change is a relevant change within section 394(2), (6) or (8)
(consortium relationships) in relation to which the member is regarded
as “E” for the purposes of section 394.
431
“Profits” and “loss”
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(1)
In this Chapter “profits” does not include chargeable gains.
(2)
References in this Chapter to “loss” are to be read accordingly.
Chapter 5
Sales of lessors: anti-avoidance provisions
432
Restrictions on relief for Chapter 3 or 4 expenses: introduction
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(1)
Section 433 applies if—
(a)
a company is treated as incurring an expense under any provision of
Chapter 3 or 4,
(b)
the expense arises directly or indirectly in consequence of, or otherwise
in connection with, any arrangements,
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(c)
the main purpose, or one of the main purposes, of the arrangements is
to secure that the company is treated as incurring the expense, and

Corporation Tax Bill
Part 9 — Leasing plant or machinery
Chapter 5 — Sales of lessors: anti-avoidance provisions
218

(d)
the company makes a loss that wholly or partly derives from the
expense.
(2)
The restrictions in section 433 apply in respect of so much of the loss as derives
from the expense (in that section referred to as “the restricted loss amount”).
(3)
For the purpose of determining how much of a loss derives from the expense,
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the loss is to be calculated on the basis that the expense is the final amount to
be deducted.
(4)
In this section “arrangements” includes any agreement, understanding,
scheme, transaction or series of transactions—
(a)
whether or not legally enforceable, and
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(b)
whether or not the company is a party to the arrangements.
433
Restrictions applying to the restricted loss amount
(1)
The restrictions in subsections (2), (5) and (6) apply to the restricted loss
amount.
(2)
Relief is not to be given to the company under any provision specified in
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subsection (3) in respect of the restricted loss amount, except by way of set off
against any relevant leasing income (see subsection (4)).
(3)
Those provisions are—
(a)
section 45 (carry forward of trade loss against subsequent trade profits),
(b)
section 62 (relief for losses made in UK property business),
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(c)
section 63 (company with investment business ceasing to carry on UK
property business),
(d)
section 66 (relief for losses made in overseas property business), and
(e)
section 91 (relief for losses from miscellaneous transactions).
(4)
In subsection (2) “relevant leasing income” means any income deriving from
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any plant or machinery lease which—
(a)
is not an excluded lease of background plant or machinery for a
building (see section 437(3)), and
(b)
is entered into before the day on which the company is treated as
incurring the expense mentioned in section 432(1)(a).
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(5)
If the business carried on by the company is a trade, relief is not to be given to
the company under section 37 (relief for trade losses against total profits) in
respect of the restricted loss amount.
(6)
The restricted loss amount is not available for set off by way of group relief in
accordance with Chapter 2 of Part 5 (surrender of company’s losses etc for an
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accounting period).
434
Introduction to sections 435 and 436
(1)
Sections 435 and 436 apply if a question arises as to the application of Chapter
3 or 4.
(2)
For the purposes of this section and sections 435 and 436 “a question as to the
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application of Chapter 3 or 4” means question A or B.

Corporation Tax Bill
Part 9 — Leasing plant or machinery
Chapter 5 — Sales of lessors: anti-avoidance provisions
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(3)
Question A is whether any company carries on a business of leasing plant or
machinery (whether alone or in partnership) for the purposes of any provision
of the sales of lessors Chapters.
(4)
Question B is the question of the amount (if any) of any income or expense
which any company is treated as receiving or incurring under any provision of
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the sales of lessors Chapters.
435
Disregard of increases and decreases in balance sheet amounts
(1)
This section applies if—
(a)
for the purpose of determining a question as to the application of
Chapter 3 or 4 regard must be had to amounts (if any) which fall (or
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would fall) to be shown in any balance sheet of any company in respect
of plant or machinery,
(b)
apart from this section, there would be a reduction or increase in any
such amount,
(c)
the reduction or increase arises directly or indirectly in consequence of,
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or otherwise in connection with, any arrangements, and
(d)
the main purpose, or one of the main purposes, of the arrangements is
to secure that there is a relevant tax advantage.
(2)
There is a relevant tax advantage if (apart from this section)—
(a)
any company would not be regarded for the purposes of any provision
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of Chapter 3 or 4 as carrying on a business of leasing plant or machinery
(whether alone or in partnership),
(b)
the amount of any income which any company is treated as receiving
under any such provision would be reduced, or
(c)
the amount of any expense which any company is treated as incurring
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under any such provision would be increased.
(3)
For the purpose of determining the question as to the application of Chapter 3
or 4, the reduction or increase in the amount which falls (or would fall) to be
shown in the balance sheet in respect of plant or machinery must be ignored.
(4)
In this section—
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“arrangements” includes any agreement, understanding, scheme,
transaction or series of transactions—
(a)
whether or not legally enforceable, and
(b)
whether or not the company for which the relevant tax
advantage is intended to be secured is a party to the
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arrangements,
“increase” includes an increase from nil, and
“reduction” includes a reduction to nil.
436
Balance sheet amounts determined on assumption company has no liabilities
(1)
This section applies if—
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(a)
a company owns any plant or machinery at any time on any day (“the
relevant day”),
(b)
for the purpose of determining a question as to the application of
Chapter 3 or 4 regard must be had to the amount (if any) which falls (or
would fall) to be shown in any balance sheet of the company in respect
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of the plant or machinery, and

Corporation Tax Bill
Part 9 — Leasing plant or machinery
Chapter 6 — Sales of lessors: general interpretation
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(c)
condition A or B is met.
(2)
Condition A is met if, apart from this section, there would be no amount which
would fall to be shown in the balance sheet of the company in respect of the
plant or machinery.
(3)
Condition B is met if the amount which, apart from this section, would fall to
5
be shown in the balance sheet of the company in respect of the plant or
machinery is less than the amount which would fall to be so shown on the
assumption in subsection (4).
(4)
The assumption is that the company has no liabilities of any kind at any time
on the relevant day.
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(5)
For the purpose of determining the question as to the application of Chapter 3
or 4, the amount which falls (or would fall) to be shown in any balance sheet of
the company in respect of the plant or machinery is to be determined on the
assumption in subsection (4) (as well as on the other assumptions applicable
under other provisions of those Chapters).
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(6)
In this section “liabilities” includes any share capital issued by the company
which falls to be treated for accounting purposes as a liability.
Chapter 6
Sales of lessors: general interpretation
437
Interpretation of the sales of lessors Chapters
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(1)
This section applies for the purposes of the sales of lessors Chapters.
(2)
“Company” means a body corporate.
(3)
“Excluded lease of background plant or machinery for a building” has the
meaning given in Chapter 6A of Part 2 of CAA 2001 (see section 70R of that
Act).
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(4)
“Finance lease”, in the case of any person, means a lease that, in accordance
with generally accepted accounting practice, falls (or would fall) to be treated
as a finance lease or loan in the accounts of that person.
(5)
“Fixture”—
(a)
means any plant or machinery that is so installed or otherwise fixed in
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or to a building or other description of land as to become, in law, part
of that building or other land, and
(b)
includes any boiler or water-filled radiator installed in a building as
part of a space or water heating system.
(6)
“Long funding finance lease”, “long funding lease” and “long funding
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operating lease” have the meanings given in Part 2 of CAA 2001 (see section
70YI(1) of that Act).
(7)
“Plant or machinery” has the same meaning as in Part 2 of CAA 2001.
(8)
“Plant or machinery lease” has the meaning given in Chapter 6A of that Part
(see section 70YI(1) of that Act).
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