Corporation Tax Bill

House of Commons

Session 2009 - 10
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Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 21 — Leasing arrangements: finance leases and loans
Chapter 2 — Finance leases with return in capital form
447

910
Reduction of taxable rent by the cumulative normal rental excess
(1)
This section applies if a period of account of the current lessor (“L”) is one for
which—
(a)
the taxable rent in relation to the lease is as a result of section 905
(current lessor taxed by reference to accountancy rental earnings) an
5
amount equal to the accountancy rental earnings, and
(b)
there is a cumulative normal rental excess.
(2)
The taxable rent for the period of account is reduced by setting against it the
cumulative normal rental excess (but not so as to reduce that rent below the
amount of the normal rent).
10
(3)
But see section 913(3) and (4) (under which the amount of the cumulative
normal rental excess which may be set against the taxable rent is limited in
some circumstances).
Relief for bad debts by reduction of cumulative rental excesses
911
Relief for bad debts: reduction of cumulative accountancy rental excess
15
(1)
This section applies if in relation to the lease for any period of account of the
current lessor—
(a)
there is a cumulative accountancy rental excess, and
(b)
a bad debt deduction falls to be made in respect of rent from the lease.
(2)
If for that period—
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(a)
the accountancy rental earnings in relation to the lease exceed the
normal rent, and
(b)
the amount of the bad debt deduction exceeds the amount of the
accountancy rental earnings,

the cumulative accountancy rental excess for that period is reduced by the
25
amount of the excess of that deduction over those earnings (but not so as to
reduce the amount of that rental excess below nil).
(3)
Subsections (4) and (5) apply if for that period the accountancy rental earnings
in relation to the lease do not exceed the normal rent.
(4)
The amount of the cumulative accountancy rental excess that may be set
30
against the taxable rent for that period under section 908(2) (reduction of
taxable rent by the cumulative accountancy rental excess) is limited to the
amount (if any) by which the normal rent exceeds the bad debt deduction.
(5)
If for that period the bad debt deduction exceeds the normal rent, the
cumulative accountancy rental excess for that period is reduced by the amount
35
of that excess (but not so as to reduce the amount of that rental excess below
nil).
(6)
In this section—
“bad debt deduction”, in relation to a period of account of the lessor,
means the total of the deductions falling to be made for accounting
40
purposes for that period by way of impairment loss in respect of rents
from the lease of the asset, and
“taxable rent” has the meaning given in section 906(2).

Corporation Tax Bill
Part 21 — Leasing arrangements: finance leases and loans
Chapter 2 — Finance leases with return in capital form
448

912
Recovery of bad debts following reduction under section 911
(1)
This section applies if in relation to the lease—
(a)
the cumulative accountancy rental excess for any period of account of
the current lessor (“L”) has been reduced under section 911(2) or (5)
because of a bad debt deduction,
5
(b)
in a subsequent period of account of L, an amount (“the relevant
credit”) is recovered or credited in respect of the amount which
constituted the bad debt deduction, and
(c)
there is a cumulative accountancy rental excess for that subsequent
period.
10
(2)
The cumulative accountancy rental excess for the subsequent period is
increased.
(3)
If the relevant credit does not exceed the total of the reductions under section
911(2) or (5), the increase is by the relevant credit.
(4)
Otherwise, the increase is limited to that total.
15
(5)
In this section “bad debt deduction” has the meaning given in section 911(6).
913
Relief for bad debts: reduction of cumulative normal rental excess
(1)
This section applies if in relation to the lease for any period of account of the
current lessor—
(a)
there is a cumulative normal rental excess, and
20
(b)
a bad debt deduction falls to be made in respect of rent from the lease.
(2)
If for that period—
(a)
the accountancy rental earnings in the case of the lease do not exceed
the normal rent, and
(b)
the amount of the bad debt deduction exceeds the amount of that rent,
25

the cumulative normal rental excess for that period is reduced by the amount
of the excess of that deduction over that rent (but not so as to reduce the
amount of that rental excess below nil).
(3)
Subsections (4) and (5) apply if for that period the accountancy rental earnings
in relation to the lease exceed the normal rent.
30
(4)
The amount of the cumulative normal rental excess that may be set against the
taxable rent for that period under section 910 (reduction of taxable rent by the
cumulative normal rental excess) is limited to the amount (if any) by which the
accountancy rental earnings exceed the bad debt deduction.
(5)
If for that period the bad debt deduction exceeds the accountancy rental
35
earnings, the cumulative normal rental excess for that period is reduced by the
amount of the excess (but not so as to reduce the amount of that rental excess
below nil).
(6)
In this section, in relation to a period of account of the lessor—
“bad debt deduction” has the meaning given in section 911(6), and
40
“taxable rent” has the meaning given in section 906(2).

Corporation Tax Bill
Part 21 — Leasing arrangements: finance leases and loans
Chapter 2 — Finance leases with return in capital form
449

914
Recovery of bad debts following reduction under section 913
(1)
This section applies if in relation to the lease—
(a)
the cumulative normal rental excess for any period of account of the
current lessor (“L”) has been reduced under section 913(2) or (5) as a
result of a bad debt deduction,
5
(b)
in a subsequent period of account of L, an amount (“the relevant
credit”) is recovered or credited in respect of the amount which
constituted the bad debt deduction, and
(c)
there is a cumulative normal rental excess for that subsequent period.
(2)
The cumulative normal rental excess for the subsequent period is increased.
10
(3)
If the relevant credit does not exceed the total of the reductions under section
913(2) or (5), the increase is by the relevant credit.
(4)
Otherwise, the increase is limited to that total.
(5)
In this section “bad debt deduction” has the meaning given in section 911(6).
Effect of disposals
15
915
Effect of disposals of leases: general
(1)
This section applies if the current lessor (“L”) or a person connected with L
disposes of—
(a)
the lessor’s interest under the lease,
(b)
the leased asset, or
20
(c)
an asset representing the leased asset (see section 934).
(2)
This Part has effect as if immediately before the disposal a period of account of
L ended and another began.
(3)
If—
(a)
two or more disposals within subsection (1) are made at the same time,
25
and
(b)
there is any cumulative accountancy rental excess for any period of
account of L in which the disposal occurs,

subsection (2) has effect in relation to those disposals as if they together
constituted a single disposal.
30
(4)
In this section “dispose” and “disposal” are to be read in accordance with
TCGA 1992.
(5)
In cases where there is any cumulative accountancy rental excess for L’s period
of account in which the disposal occurs, section 37A of that Act (consideration
on disposal of certain leases) makes provision for the purposes of that Act
35
about the reduction of the consideration for the disposal by that excess in
determining if a gain has accrued.
916
Assignments on which neither a gain nor a loss accrues
(1)
This section applies if—
(a)
the current lessor (“L”) assigns the lessor’s interest under the lease, and
40

Corporation Tax Bill
Part 21 — Leasing arrangements: finance leases and loans
Chapter 2 — Finance leases with return in capital form
450

(b)
the assignment is a disposal on which, as a result of any of the no gain/
no loss provisions, neither a gain nor a loss accrues.
(2)
This Part has effect as if—
(a)
a period of account of L (“L’s period”) ended with the assignment, and
(b)
a period of account of the assignee (“A’s period”) began with the
5
assignment.
(3)
Any cumulative accountancy rental excess for L’s period becomes the
cumulative accountancy rental excess for A’s period.
(4)
Any cumulative normal rental excess for L’s period becomes the cumulative
normal rental excess for A’s period.
10
(5)
If the assignee is a person subject to income tax, so far as this section relates to
the assignee, it applies for the purposes of Part 11A of ITA 2007 as it would
otherwise apply for the purposes of this Part.
(6)
In this section “the no gain/no loss provisions” has the same meaning as in
TCGA 1992 (see section 288(3A) of that Act).
15
Capital allowances: clawback of major lump sum
917
Effect of capital allowances: introduction
(1)
This section and sections 918 to 922 apply if an occasion occurs on which a
major lump sum falls to be paid in relation to the lease of the asset.
(2)
In those sections the occasion is called “the relevant occasion”.
20
918
Cases where expenditure taken into account under Part 2, 5 or 8 of CAA 2001
(1)
This section applies if capital expenditure incurred by the current lessor (“L”)
in respect of the leased asset is or has been taken into account for the purposes
of any allowance or charge under—
(a)
Part 2 of CAA 2001 (plant and machinery allowances),
25
(b)
Part 5 of that Act (mineral extraction allowances), or
(c)
Part 8 of that Act (patent allowances).
(2)
The Part of that Act in question (“the relevant Part”) has effect as if the relevant
occasion were an event (“the relevant event”) as a result of which a disposal
value is to be brought into account of an amount equal to the amount or value
30
of the major lump sum (but subject to any applicable limiting provision).
(3)
In this section “limiting provision” means a provision to the effect that the
disposal value of the asset in question is not to exceed an amount (“the limit”)
described by reference to capital expenditure incurred in respect of the asset.
(4)
Subsection (5) applies if—
35
(a)
as a result of subsection (2), a disposal value (“the relevant disposal
value”) falls or has fallen to be brought into account by a person in
respect of the leased asset for the purposes of the relevant Part, and
(b)
a limiting provision has effect in the case of that Part.

Corporation Tax Bill
Part 21 — Leasing arrangements: finance leases and loans
Chapter 2 — Finance leases with return in capital form
451

(5)
The limiting provision has effect (so far as it would not otherwise do so), in
relation to the relevant disposal value and any simultaneous or later disposal
value, as if—
(a)
it did not limit any particular disposal value, but
(b)
it limited the total amount of all the disposal values brought into
5
account for the purposes of the relevant Part by L in respect of the
leased asset.
(6)
In subsection (5) “simultaneous or later disposal value” means any disposal
value which falls to be brought into account by L in respect of the leased asset
as a result of any event occurring at the same time as, or later than, the relevant
10
event.
919
Cases where expenditure taken into account under other provisions of CAA
2001
(1)
This section applies if any allowance is or has been given in respect of capital
expenditure incurred by the current lessor (“L”) in respect of the leased asset
15
under any provision of CAA 2001 other than—
(a)
Part 2 of CAA 2001 (plant and machinery allowances),
(b)
Part 5 of that Act (mineral extraction allowances), or
(c)
Part 8 of that Act (patent allowances).
(2)
The amount specified in subsection (3) is treated, in relation to L, as if it were a
20
balancing charge to be made on L for the chargeable period in which the
relevant occasion falls.
(3)
That amount is an amount equal to—
(a)
the total of the allowances given as mentioned in subsection (1) (so far
as not previously recovered or withdrawn), or
25
(b)
if it is less, the amount or value of the major lump sum.
(4)
In this section “chargeable period” has the meaning given by section 6 of CAA
2001.
920
Capital allowances deductions: waste disposal and cemeteries
(1)
This section applies if any deduction is or has been allowed to the current
30
lessor (“L”) in respect of capital expenditure incurred in connection with the
leased asset as a result of—
(a)
section 142 or 145 of CTA 2009 (preparation and restoration
expenditure in relation to waste disposal site), or
(b)
section 147 of that Act (cemeteries and memorial gardens: deduction
35
for capital expenditure).
(2)
L is treated as if trading receipts arose to L from the trade in question on the
relevant occasion.
(3)
The amount of those receipts is equal to the lesser of—
(a)
the amount or value of the major lump sum, and
40
(b)
the deductions previously allowed.
921
Capital allowances deductions: films
(1)
This section applies if—

Corporation Tax Bill
Part 21 — Leasing arrangements: finance leases and loans
Chapter 2 — Finance leases with return in capital form
452

(a)
any relevant film deduction has been allowed to the current lessor (“L”)
in respect of expenditure incurred in connection with the leased asset,
and
(b)
the amount or value of the major lump sum exceeds so much of that
sum as was treated as receipts of a revenue nature under section 40A(2)
5
of F(No.2)A 1992 (disposal proceeds of original master version of film
treated as receipt of a revenue nature).
(2)
In subsection (1) “relevant film deduction” means any deduction as a result
of—
(a)
section 40B(1) of F(No.2)A 1992 (allocation of expenditure on master
10
versions of films to periods), or
(b)
section 42 of that Act (relief for production or acquisition expenditure
in respect of films).
(3)
L is treated as if receipts of a revenue nature arose to L from the trade or
business in question on the relevant occasion.
15
(4)
The amount of those receipts is equal to the excess mentioned in subsection
(1)(b).
922
Contributors to capital expenditure
(1)
This section applies if—
(a)
section 918 or 919 applies in relation to a leased asset,
20
(b)
allowances are or have been made to a person (“the contributor”) as a
result of sections 537 to 542 of CAA 2001 (allowances in respect of
contributions to capital expenditure), and
(c)
those allowances are or were in respect of the contributor’s
contribution of a capital sum to expenditure on the provision of the
25
leased asset.
(2)
Section 918 or, as the case may be, section 919 has effect in relation to the
contributor and those allowances as it has effect in relation to the current lessor
and allowances in respect of capital expenditure incurred by the current lessor
in respect of the leased asset.
30
Schemes to which this Chapter does not at first apply
923
Pre-26 November 1996 schemes where this Chapter does not at first apply
(1)
This section applies if—
(a)
the lease of an asset forms part of a pre-26 November 1996 scheme, but
(b)
the conditions in section 902 become met after 26 November 1996.
35
(2)
For the meaning of “forms part of a pre-26 November 1996 scheme”, see section
930.
(3)
This Part has effect as if—
(a)
a period of account (“period 1”) of the current lessor (“L”) ended
immediately before the time at which those conditions become met,
40
(b)
another period of account of L (“period 2”) began immediately before
that time and ended immediately after that time, and
(c)
another period of account of L began immediately after that time.

Corporation Tax Bill
Part 21 — Leasing arrangements: finance leases and loans
Chapter 2 — Finance leases with return in capital form
453

(4)
If, on the continuous application assumption (see subsection (9)), there would
be an amount of cumulative accountancy rental excess for period 2, that
amount is the cumulative accountancy rental excess for period 2.
(5)
If subsection (4) applies, L is treated for corporation tax purposes as if in period
1 L had been entitled to, and there had arisen to L, rent from the lease of an
5
amount equal to that cumulative accountancy rental excess.
(6)
The amount of rent mentioned in subsection (5)—
(a)
is in addition to any other rent from the lease for period 1, and
(b)
is left out of account for the purposes of section 905 (current lessor
taxed by reference to accountancy rental earnings).
10
(7)
Rent within subsection (5) is treated for corporation tax purposes as if it had
accrued and L had become entitled to it immediately before the end of period 1.
(8)
If, on the continuous application assumption, there would be an amount of
cumulative normal rental excess for period 2, that amount is the cumulative
normal rental excess for period 2.
15
(9)
In this section “the continuous application assumption” means the assumption
that this Chapter (other than this section) had applied in the case of the lease at
all times on or after 26 November 1996.
(10)
If at any time the person who was the lessor at that time was a person within
the charge to income tax, the reference in subsection (9) to this Chapter (other
20
than this section) includes a reference to Chapter 2 of Part 11A of ITA 2007
(other than section 614BX of that Act).
924
Post-25 November 1996 schemes to which Chapter 3 applied first
(1)
This section applies if—
(a)
the conditions in section 902 become met in the case of the lease of the
25
asset, and
(b)
immediately before those conditions become met, Chapter 3 applied.
(2)
Subsection (3) applies for the purpose of determining—
(a)
the cumulative accountancy rental excess for any period of account
ending after those conditions become met, or
30
(b)
the cumulative normal rental excess for any such period.
(3)
This Part has effect as if this Chapter had applied in relation to the lease at any
time when Chapter 3 applied in relation to it.
(4)
If at any time the person who was the lessor at that time was a person within
the charge to income tax—
35
(a)
the reference in subsection (1)(a) to the conditions in section 902
becoming met at that time includes a reference to the conditions in
section 614BC of ITA 2007 becoming so met,
(b)
the reference in subsection (1)(b) to Chapter 3 applying immediately
before that time includes a reference to Chapter 3 of Part 11A of that Act
40
so applying, and
(c)
the reference in subsection (3) to Chapter 3 applying at that time
includes a reference to Chapter 3 of that Part so applying.