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 2 — Long funding leases of plant or machinery
191

(2)
Except where subsection (3) applies, the starting value is the market value of
the plant or machinery at the commencement of the term of the section 379
lease.
(3)
This subsection applies if the lessee—
(a)
has the use of the plant or machinery as a result of having incurred
5
expenditure on its provision for purposes other than those of a
qualifying activity, but
(b)
brings the plant or machinery into use for the purposes of a qualifying
activity on or after 1 April 2006.
(4)
If subsection (3) applies, the starting value is the lower of—
10
(a)
first use market value, and
(b)
first use amortised market value.
(5)
“First use market value” means the market value of the plant or machinery at
the time when it is first brought into use for the purposes of the qualifying
activity.
15
(6)
“First use amortised market 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 assumption in subsection (7).
(7)
That assumption is that the market value of the plant or machinery at the
commencement of the term of the section 379 lease had been written off on a
20
straight line basis over its remaining useful economic life.
(8)
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.
Interpretation
381
Interpretation of Chapter
25
(1)
Chapter 6A of Part 2 of CAA 2001 (interpretation of provisions about long
funding leases) applies in relation to this Chapter as it applies in relation to that
Part.
(2)
Accordingly—
“the finance lease test” means the finance lease test in section 70N of CAA
30
2001,
“long funding lease” has the meaning given by section 70G of that Act,
“long funding finance lease” means a long funding lease that meets the
finance lease test as a result of section 70N(1)(a) of that Act, and
“long funding operating lease” means a long funding lease that is not a
35
long funding finance lease.
(3)
As to the meaning of the following other expressions used in this Chapter and
defined in Chapter 6A of Part 2 of CAA 2001, see—
(a)
for “commencement”, in relation to the term of a lease, section 70YI(1)
of that Act,
40
(b)
for “inception”, section 70YI(1) of that Act,
(c)
for “lease”, section 70YI(1) of that Act,
(d)
for “lessee”, section 70YI(1) of that Act,
(e)
for “lessor”, section 70YI(1) of that Act,

Corporation Tax Bill
Part 9 — Leasing plant or machinery
Chapter 3 — Sales of lessors: leasing business carried on by a company alone
192

(f)
for “market value”, in relation to plant or machinery, section 70YI(2) of
that Act,
(g)
for “plant or machinery”, in relation to a lease, section 70YI(3) of that
Act,
(h)
for “plant or machinery lease”, section 70YI(1) of that Act,
5
(i)
for “remaining useful economic life”, section 70YI(1) of that Act,
(j)
for “the term”, in relation to a lease, section 70YI(1) of that Act,
(k)
for “termination”, section 70YI(1) of that Act,
(l)
for “termination amount”, section 70YG of that Act, and
(m)
for “termination value”, section 70YH of that Act.
10
(4)
In this Chapter—
“qualifying activity” has the same meaning as in Part 2 of CAA 2001, and
“residual value”, in relation to any plant or machinery leased under a long
funding operating lease, means—
(a)
the estimated market value of the plant or machinery on a
15
disposal at the end of the term of the lease, less
(b)
the estimated costs of that disposal.
(5)
Any reference in this Chapter to a sum being written off on a straight line basis
over a period of time (the “writing-off period”) is a reference to—
(a)
the sum being apportioned between each of the periods of account in
20
which any part of the writing-off period falls,
(b)
that apportionment being made on a time basis, according to the
proportion of the writing-off period that falls in each of the periods of
account, and
(c)
the sum being written off accordingly.
25
Chapter 3
Sales of lessors: leasing business carried on by a company alone
Introduction
382
Introduction to Chapter
(1)
This Chapter applies if there is a qualifying change of ownership in relation to
30
a company carrying on a business of leasing plant or machinery otherwise than
in partnership with other persons.
(2)
For the meaning of “business of leasing plant or machinery”, see sections 387
to 391.
(3)
For the meaning of “qualifying change of ownership”, see sections 392 to 398.
35
(4)
As to cases where there is a qualifying change of ownership in relation to a
company carrying on a business of leasing plant or machinery in partnership
with other persons, see Chapter 4.

Corporation Tax Bill
Part 9 — Leasing plant or machinery
Chapter 3 — Sales of lessors: leasing business carried on by a company alone
193

Income and matching expense in different accounting periods
383
Income and matching expense in different accounting periods
(1)
This section applies if on any day (“the relevant day”)—
(a)
a company carries on a business of leasing plant or machinery
otherwise than in partnership),
5
(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.
(2)
On the relevant day—
(a)
the company is treated as receiving an amount of income, and
10
(b)
the accounting period of the company ends.
(3)
The income—
(a)
is treated as a receipt of the business, and
(b)
is brought into account in calculating for corporation tax purposes the
profits of the business for that accounting period.
15
(4)
On the day following the relevant day—
(a)
the company is treated as incurring an expense, and
(b)
a new accounting period of the company begins.
(5)
The expense—
(a)
is treated as an expense of the business, and
20
(b)
is allowed as a deduction in calculating for corporation tax purposes
the profits of the business for that new accounting period.
(6)
This section is supplemented by sections 384 to 386.
384
Amount of income and expense
(1)
The amount of the income under section 383 is calculated in accordance with
25
sections 399 to 407.
(2)
The amount of the expense under section 383 is the same as the amount of the
income.
385
No carry back of the expense
(1)
This section applies if the business carried on by the company is a trade carried
30
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
loss as derives from the expense.
35
(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.

Corporation Tax Bill
Part 9 — Leasing plant or machinery
Chapter 3 — Sales of lessors: leasing business carried on by a company alone
194

386
Relief for expense otherwise giving rise to carried forward loss
(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 383 as
5
incurring an expense of a business and an accounting period of the
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
10
company after the accounting period in which the loss is made (“the
subsequent period”),
(e)
some or all of the carried forward loss (“the derived loss”) derives
from—
(i)
the expense under section 383, or
15
(ii)
an expense treated as arising under subsection (2) and allowed
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
20
section 383 or 425.
(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,
25
D is the number of days in the accounting period in which the loss is
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
30
calculating for corporation tax purposes the profits of the business for the
subsequent period.
(4)
For the purpose of determining how much of the carried forward loss derives
from the expense under section 383 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
35
be deducted.
“Business of leasing plant or machinery”
387
“Business of leasing plant or machinery”
(1)
This section determines for the purposes of this Chapter whether, on any day
(“the relevant day”), a company (“the relevant company”) carries on a business
40
of leasing plant or machinery.

Corporation Tax Bill
Part 9 — Leasing plant or machinery
Chapter 3 — Sales of lessors: leasing business carried on by a company alone
195

(2)
A business carried on by the relevant company is a business of leasing plant or
machinery on the relevant day if condition A or B is met.
(3)
Condition A is that at least half of the relevant plant or machinery value relates
to qualifying leased plant or machinery.
(4)
Subsection (3) is supplemented by section 388.
5
(5)
Condition B is that at least half of the relevant company’s income in the period
of 12 months ending with the relevant day derives from qualifying leased plant
or machinery.
(6)
Subsection (5) is supplemented by section 391.
(7)
For the purposes of this Chapter, plant or machinery is “qualifying leased plant
10
or machinery”, in relation to a company, if—
(a)
expenditure is incurred (or treated as incurred) by the company on the
provision of the plant or machinery wholly or partly for the purposes
of the business,
(b)
the company would be (or would at any time have been) entitled, on
15
the assumptions in subsection (8), 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
is not an excluded lease of background plant or machinery for a
20
building (see section 437(3)).
(8)
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,
and
25
(b)
that any claim that could be made for an allowance under Part 2 of that
Act is made.
388
“Relevant plant or machinery value” for condition A in section 387
(1)
This section applies for the purposes of condition A in section 387.
(2)
The relevant plant or machinery value is the sum of the amounts in subsection
30
(3), but subject to section 390 (relevant plant or machinery value where relevant
company lessee under long funding lease etc).
(3)
The amounts are—
(a)
the amounts (if any) that would be shown in respect of plant or
machinery in the appropriate balance sheet of the relevant company
35
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 relevant company drawn up as at the end of the relevant
day in respect of relevant transferred plant or machinery.
(4)
For the purposes of subsection (3)(b) plant or machinery is “relevant
40
transferred plant or machinery” if an amount in respect of it would be shown
in the appropriate balance sheet of an associated company drawn up as at the
start of the relevant day.
(5)
This section is supplemented by section 389.