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Clauses 917 to 922: Capital allowances: clawback of major lump sums
Overview
2731. These clauses unpack paragraph 11 of Schedule 12 to FA 1997 to improve its accessibility.
Clause 917: Effect of capital allowances: introduction
2732. This clause introduces clauses 918 to 922 and provides that they apply if a major lump sum (see clause 902(5)) falls to be paid in relation to a lease. It is based on paragraph 11(1) and (2) of Schedule 12 to FA 1997.
Clause 918: Cases where expenditure taken into account under Part 2, 5 or 8 of CAA 2001
2733. This clause deals with capital allowances in respect of plant or machinery, mineral extraction and patent rights. It is based on paragraph 11(3) to (7) of Schedule 12 to FA 1997.
2734. Subsection (2) brings into account as disposal value for the purposes of CAA an amount equal to the amount or value of the major lump sum. This is subject to adjustment under subsections (3) to (6) if the disposal value is limited in accordance with CAA.
Clause 919: Cases where expenditure taken into account under other provisions of CAA 2001
2735. This clause deals with capital allowances given under any provision of CAA other than those mentioned in clause 918. It is based on paragraph 11(8) and (14) of Schedule 12 to FA 1997.
2736. In these cases, an amount equal to the allowances given or, if less, the amount or value of the major lump sum is treated as a balancing charge.
2737. Following the repeal of section 532 of ICTA by CTA 2009, the extended definition of the Capital Allowances Act in paragraph 11(14) of Schedule 12 to FA 1997 is otiose and has not been rewritten.
Clause 920: Capital allowances deductions: waste disposal and cemeteries
2738. This clause deals with deductions for capital expenditure allowed under section 142, 145 or 147 of CTA 2009. It is based on paragraph 11(11) and (12) of Schedule 12 to FA 1997.
2739. In these cases, an amount equal to the deductions allowed or, if less, the amount or value of the major lump sum is treated as a trading receipt.
Clause 921: Capital allowances deductions: films
2740. This clause deals with deductions in respect of films allowed under section 40B(1) or 42 of F(No 2)A 1992. It is based on paragraph 11(9) and (10) of Schedule 12 to FA 1997.
2741. In these cases, if the amount or value of the major lump sum exceeds so much of that sum as was treated as a receipt of a revenue nature under section 40A(2) of F(No 2)A 1992, the excess is also treated as a receipt of a revenue nature.
Clause 922: Contributors to capital expenditure
2742. This clause deals with the case where capital allowances have been made to a person making contributions to capital expenditure on the provision of a leased asset under sections 537 to 542 of CAA. It is based on paragraph 11(13) of Schedule 12 to FA 1997.
2743. Subsection (2) provides that clauses 918 and 919 have the same effect in relation to the contributor and those allowances as they do in relation to the lessor and allowances given to the lessor for such expenditure by the lessor.
Clause 923: Pre-26 November 1996 schemes where this Chapter does not at first apply
2744. This clause makes provision for recognising income from some finance leases which form part of a “pre-26 November 1996 scheme” as defined in clause 930(1)(a). It is based on paragraph 13 of Schedule 12 to FA 1997.
2745. A lease which forms part of a pre-26 November 1996 scheme only falls within this Part if it meets all the conditions in clause 902. It does not fall within Chapter 3 as that Chapter only applies to leases which do not form part of a pre-26 November 1996 scheme (see clause 927(1)(b) and the definition of a post-25 November 1996 scheme in clause 930(1)(b)).
2746. If a lease forming part of a pre-26 November 1996 scheme met all the conditions in clause 902 on 26 November 1996, it falls within Chapter 2 for all periods of account beginning, or treated under clause 932 as beginning, on or after that date, subject to clause 901(3).
2747. But such a lease may not meet all those conditions until after 26 November 1996. In that case, this clause effects a catching up exercise by taxing under clause 905 in the period when the lease is first subject to the rules in Chapter 2 the accumulated excess (if any) of the accountancy measure of income from the lease over the income actually taxed in earlier periods. No such excess relating to periods prior to 26 November 1996 can be taxed in this way nor are the assessments for earlier periods of account actually re-opened. The catching up is done in the period in which the conditions are met.
2748. Subsection (3)(b) provides that for the purposes of this Part the time when the conditions are satisfied forms its own brief period of account. This ensures that the computational provisions in this clause work correctly.
2749. Subsection (10) provides for the case where for example there has been an assignment within clause 916 and the lessor at an earlier time was within the charge to income tax.
Clause 924: Post-25 November 1996 schemes to which Chapter 3 applied first
2750. This clause provides continuity of reliefs when a lease changes status. It is based on paragraph 14 of Schedule 12 to FA 1997.
2751. It applies if a lease which is initially subject to the rules of Chapter 3 subsequently comes within those of Chapter 2. Any cumulative accountancy rental excess or any cumulative normal rental excess for the purposes of Chapter 3 counts for the purposes of Chapter 2.
2752. Subsection (4) provides for the case where for example there has been an assignment within clause 916 and the lessor at an earlier time was within the charge to income tax.
Chapter 3: Other finance leases
Overview
2753. This Chapter is concerned with cases outside Chapter 2 where any assets are leased in such a way that they are in accordance with GAAP a finance lease or loan.
Clause 925: Introduction to Chapter
2754. This clause introduces the Chapter. It is based on paragraph 15(1) of Schedule 12 to FA 1997.
Clause 926: Purpose of this Chapter
2755. This clause sets out the main purpose of the Chapter. It is based on paragraph 15(2) of Schedule 12 to FA 1997.
2756. That purpose is to ensure that the taxable measure of earnings from the lease is not less than the accountancy measure. In effect, the rules take as the taxable earnings the amount which, but for this Part, the lessor would bring into account as rent from the lease for the purposes of corporation tax or the amount of the return on investment from the lease in accordance with GAAP, whichever is the higher. Unlike Chapter 2, this Chapter contains no special rules relating to reliefs for capital expenditure.
Clause 927: Leases to which this Chapter applies
2757. This clause determines whether Chapter 3 applies to a particular lease. It is based on paragraph 16 of Schedule 12 to FA 1997.
2758. The Chapter only applies to leases granted on or after 26 November 1996 and then only if they form part of a post-25 November 1996 scheme as defined in clause 930(1)(b) (see subsection (1)(a) and (b)).
2759. The lease may be of any property or rights (see subsection (1)(a) and the definition of “asset” in clause 937). Contrast Parts 9 and 20 which apply only to leases of plant or machinery.
2760. In addition, for the Chapter to apply, condition A, but not all of conditions B to E, in clause 902 must have been met in relation to the lease at some time on or after 26 November 1996 in a period of account of the current lessor (see subsection (1)(c) and (d)). But once condition A has been met in relation to the lessor at the time, it is treated as continuing to be met as regards any subsequent lessor unless and until the lease is assigned to a wholly unrelated person (see subsections (4) to (6)).
2761. Subsection (3) provides that Chapter 2 does not apply to long funding leases of plant or machinery in relation to which Part 2 of CAA gives capital allowances to the lessee instead of the lessor. Chapter 2 of Part 9 of this Bill sets out the basis of taxation of rental earnings under such leases.
2762. Subsection (7) is a necessary consequence of the split into separate provisions for corporation tax purposes and income tax purposes.
Clause 928: Current lessor taxed by reference to accountancy rental earnings
2763. This clause provides for the lessor to bring into account for income tax purposes the accountancy rental earnings in respect of the lease for a period of account if they exceed the normal rent for the period. It is based on paragraph 17 of Schedule 12 to FA 1997.
2764. Paragraph 17 applies paragraph 5 of Schedule 12 to FA 1997 for the purposes of Part 2 of that Schedule by cross-reference. This clause restates clause 905 (based on paragraph 5 of Schedule 12 to FA 1997) in full for the purposes of Chapter 3.
Clause 929: Application of provisions of Chapter 2 for purposes of this Chapter
2765. This clause applies the provisions of clauses 906 to 916 for the purposes of this Chapter. It is based on paragraph 17 of Schedule 12 to FA 1997.
Chapter 4: Supplementary provisions
Overview
2766. This Chapter contains supplementary and interpretative provisions.
Clause 930: Pre-26 November 1996 schemes and post-25 November 1996 schemes
2767. This clause defines a “pre-26 November 1996 scheme” and a “post-25 November 1996 scheme”. It is based on paragraph 27 of Schedule 12 to FA 1997.
2768. For the significance of these terms see the commentary on clauses 923 and 927.
Clause 931: Time apportionment where periods of account do not coincide
2769. This clause deals with situations where the measure of the accountancy rental earnings taxed under this Part on the lessor is that shown in the accounts of a connected person or the group as a whole and the period for which those accounts are drawn up is different from the period for which the lessor’s accounts are drawn up. It is based on paragraph 24 of Schedule 12 to FA 1997.
2770. In these circumstances the figures are time-apportioned as necessary to arrive at the measure of accountancy rental earnings for the lessor’s period of account.
Clause 932: Periods of account and related periods of account and accounting periods
2771. This clause sets out the definition of “period of account”. It is based on paragraphs 23 and 30 of Schedule 12 to FA 1997.
Clause 933: Connected persons
2772. This clause provides that persons are regarded as connected throughout the period beginning at the time the leasing arrangements are made and ending with the termination of the current lessor’s interest, if they are connected at some point during that period. It is based on paragraph 25(1) of Schedule 12 to FA 1997.
2773. Clause 1176(1) provides that clause 1122 (“connected” persons) applies for the purposes of this Bill unless otherwise indicated (whether expressly or by implication). Accordingly it is unnecessary to rewrite paragraph 25(2) of Schedule 12 to FA 1997 here.
Clause 934: Assets which represent the leased asset
2774. This clause defines assets which represent leased assets. It is based on paragraph 26 of Schedule 12 to FA 1997.
2775. The purpose is to identify assets which in economic terms are essentially the same asset, in whole or in part, as the leased asset. This Part provides broadly that transactions in such assets are treated as transactions involving the leased asset itself.
Clause 935: Parent undertakings and consolidated group accounts
2776. This clause sets out an assumption about consolidated accounts of companies which would count as “parent undertakings” for the purposes of the Companies Act 2006 but are not required for accounting purposes to prepare consolidated accounts in accordance with GAAP. It is based on paragraph 28 of Schedule 12 to FA 1997.
2777. Such companies are regarded for the purposes of this Part as having to draw up consolidated accounts whether or not they are actually required to do so for accounting purposes. So parent companies incorporated outside the United Kingdom are treated, for the purpose of identifying leases within the Part and calculating the rental income from them, as having to draw up consolidated accounts if they would not be so required for accounting purposes.
Clause 936: Assessments and adjustments
2778. This clause ensures that all assessments and adjustments necessary to give effect to the provisions of this Part are made. It is based on paragraph 29 of Schedule 12 to FA 1997.
Clause 937: Interpretation of Part
2779. This clause provides definitions and interpretative rules. It is based on paragraph 30 of Schedule 12 to FA 1997.
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