Corporation Tax Bill

House of Commons

Session 2009 - 10
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Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 19 — Sale and lease-back etc
Chapter 4 — Leased assets: capital sums
430

873
Sum obtained
(1)
Condition B is that the person making the payment—
(a)
obtains a capital sum in respect of the lessee’s interest in the lease, and
(b)
is a company within the charge to corporation tax.
(2)
Condition C is that an associate of the person making the payment—
5
(a)
obtains a capital sum by way of consideration in respect of the lessee’s
interest in the lease, and
(b)
is a company within the charge to corporation tax.
(3)
Condition D is that—
(a)
the lessor’s interest in the lease, or any other interest in the asset,
10
belongs to an associate of the person making the payment,
(b)
the associate obtains a capital sum in respect of the interest, and
(c)
the associate is a company within the charge to corporation tax.
(4)
Condition E is that—
(a)
the lessor’s interest in the lease, or any other interest in the asset,
15
belongs to an associate of the person making the payment,
(b)
an associate of that associate obtains a capital sum by way of
consideration in respect of the interest, and
(c)
the associate obtaining the sum is a company within the charge to
corporation tax.
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(5)
Condition B, C, D or E may be met before, at or after the time when the
payment is made.
(6)
Condition B or C is not met if—
(a)
the lease is a hire-purchase agreement for plant or machinery, and
(b)
the capital sum is required to be brought into account as the whole or
25
part of the disposal value of the plant or machinery under section 68 of
CAA 2001.
(7)
Condition D or E is not met if—
(a)
the capital sum is obtained in respect of the lessee’s interest in the lease,
(b)
the lease is a hire-purchase agreement for plant or machinery, and
30
(c)
the capital sum is required to be brought into account as the whole or
part of the disposal value of the plant or machinery under section 68 of
CAA 2001.
Charge to corporation tax
874
Charge to corporation tax
35
(1)
The company obtaining the capital sum is to be treated as receiving, at the time
the sum is obtained, an amount—
(a)
which is equal to the chargeable amount, and
(b)
to which the charge to corporation tax on income applies.
(2)
The chargeable amount is—
40
(a)
the amount of the payment for which a deduction by way of relevant
tax relief is allowed, or
(b)
the total amount of such payments (if more than one).

Corporation Tax Bill
Part 19 — Sale and lease-back etc
Chapter 4 — Leased assets: capital sums
431

(3)
But subsections (1) and (2) have effect subject to—
(a)
subsections (4) to (7), and
(b)
section 875(3) (hire-purchase agreements).
(4)
The chargeable amount is not to exceed the capital sum (but see section 875(4)).
(5)
Subsection (6) applies if—
5
(a)
the charge to corporation tax on income is applied by this section in
respect of a capital sum, and
(b)
a payment or part of a payment is taken into account in deciding the
chargeable amount in respect of the sum.
(6)
The payment or part must be left out of account in deciding—
10
(a)
whether the charge to corporation tax on income is to be applied by this
section in respect of another capital sum, and
(b)
the chargeable amount in respect of the other sum (if the charge is to be
applied in respect of the other sum).
(7)
The order in which subsections (5) and (6) are applied is the order in which
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capital sums are obtained.
875
Hire-purchase agreements
(1)
This section applies if—
(a)
the lease is a hire-purchase agreement (as defined in section 1129), and
(b)
the capital sum is obtained in respect of the lessee’s interest in the lease
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(whether it is obtained by the person making the payment or by an
associate).
(2)
Find the total of the following amounts—
(a)
so much of any payment made under the lease by the company
obtaining the capital sum as is not a payment for which a deduction by
25
way of relevant tax relief is allowed, and
(b)
if the lessee’s interest was assigned to the company obtaining the
capital sum, any capital payment made by that company as
consideration for the assignment.
(3)
If the total of the amounts found under subsection (2) is equal to or greater than
30
the capital sum, the charge to corporation tax on income is not applied by
section 874 in respect of the capital sum.
(4)
If the total of those amounts is less than the capital sum, in applying section
874(4) that total must be deducted from the capital sum.
(5)
If the capital sum is the consideration for part only of the lessee’s interest in the
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lease—
(a)
any amount found under subsection (2) (and still unallowed) must be
reduced to a just and reasonable proportion of it, and
(b)
in calculating that proportion account must be taken of the degree to
which the payments mentioned in subsection (2) have contributed to
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the value of what is disposed of in return for the capital sum.
(6)
Subsection (7) applies if—
(a)
more than one capital sum is (or is treated as) obtained by the same
company in respect of the lessee’s interest in the lease, and

Corporation Tax Bill
Part 19 — Sale and lease-back etc
Chapter 4 — Leased assets: capital sums
432

(b)
in arriving at a total under subsection (2) a payment is taken into
account in respect of one of the capital sums.
(7)
So far as the payment is so taken into account it must not be taken into account
in applying subsection (2) to another of the capital sums.
(8)
The order in which subsections (6) and (7) are applied is the order in which
5
capital sums are obtained.
876
Adjustments where sum obtained before payment made
(1)
This section applies if a capital sum is obtained as mentioned in section 873 and
later a payment is made as mentioned in section 872.
(2)
Adjustments must be made if they are needed to give effect to the application
10
by section 874 of the charge to corporation tax on income in respect of the
capital sum.
(3)
An adjustment may be made within the period of 6 years which starts at the
end of the accounting period in which the payment is made.
(4)
Subsection (3) applies despite any time limit specified in the Corporation Tax
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Acts.
Obtaining of sum
877
Sum obtained in respect of interest
A reference in this Chapter to a sum obtained in respect of an interest in an
asset (whether the lessee’s interest in a lease of the asset or the lessor’s interest
20
or any other interest) includes a reference to—
(a)
insurance money obtained in respect of the interest, and
(b)
sums representing money or money’s worth obtained in respect of the
interest by a transaction or series of transactions disposing of it.
878
Sum obtained in respect of lessee’s interest
25
(1)
This section applies to a reference in this Chapter to a sum obtained in respect
of the lessee’s interest in a lease of an asset.
(2)
The reference includes a reference to sums representing the consideration in
money or money’s worth obtained on any of the following occasions—
(a)
a surrender of the interest to the lessor,
30
(b)
an assignment of the lease, and
(c)
the creation of a sublease or another interest out of the lease.
(3)
The reference also includes a reference to sums representing money or
money’s worth obtained in respect of the interest by a transaction or series of
transactions under which the lessee’s rights are merged in any way with the
35
lessor’s rights or with any other rights as respects the asset.
(4)
Subsection (3) applies so far as the money or money’s worth is attributable to
the lessee’s rights under the lease.

Corporation Tax Bill
Part 19 — Sale and lease-back etc
Chapter 4 — Leased assets: capital sums
433

879
Disposal of interest to associate
(1)
This section applies for the purposes of this Chapter if a company disposes of
an interest in an asset to a person who is the company’s associate (and the
interest may be the lessee’s interest in a lease of the asset or the lessor’s interest
or any other interest).
5
(2)
The company disposing of the interest must be treated as obtaining in respect
of it the greatest of—
(a)
the sum in fact obtained by the company,
(b)
the value of the interest in the open market, and
(c)
the value of the interest to the person to whom it is in effect transferred.
10
(3)
The disposal—
(a)
may be direct or indirect, and
(b)
may be effected by a transaction or series of transactions described in
section 877(b) or 878(3).
Apportionment
15
880
Apportionment of payments made and of sums obtained
(1)
This section applies for the purposes of this Chapter.
(2)
Subsection (3) applies if—
(a)
a payment is made,
(b)
it is one for which a deduction by way of relevant tax relief is allowed,
20
and
(c)
it is made by persons carrying on a trade, profession or vocation in
partnership.
(3)
The payment must be apportioned in a manner which is just and reasonable.
(4)
Subsection (5) applies if—
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(a)
a sum is obtained in respect of an interest in an asset,
(b)
the sum is obtained by persons carrying on a trade in partnership, and
(c)
the asset is and continues to be used for the purposes of the trade.
(5)
The sum must be apportioned between the partners in the shares in which they
are entitled to the profits of the trade at the time the sum is obtained.
30
(6)
Subsection (7) applies if—
(a)
a sum is obtained in respect of an interest in an asset, and
(b)
the sum is obtained by persons jointly entitled to the interest.
(7)
The sum must be apportioned according to their respective rights in the
interest.
35
(8)
Subsections (6) and (7) are subject to subsections (4) and (5).
881
Manner of apportionment
(1)
Subsections (2) and (3) apply if—
(a)
a payment or sum is to be apportioned under section 880 or under
section 681DJ of ITA 2007,
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Corporation Tax Bill
Part 19 — Sale and lease-back etc
Chapter 4 — Leased assets: capital sums
434

(b)
at the time of the apportionment it appears that it is material to the
liability to tax (whether corporation tax or income tax, and for whatever
period) of two or more persons (in this section referred to collectively
as “the set”),
(c)
a question arises as to the manner in which the payment or sum is to be
5
apportioned, and
(d)
at the time of the apportionment, it appears that the apportionment is
material to the corporation tax liability (for whatever period) of—
(i)
a person, or some two or more persons, in the set, or
(ii)
all the persons in the set.
10
(2)
For the purposes of corporation tax of the person or persons mentioned in
subsection (1)(d), the question is to be determined in the same way as an
appeal.
(3)
All the persons in the set are entitled to be a party to the proceedings.
Interpretation
15
882
Associates
(1)
This section applies for the purposes of this Chapter.
(2)
Persons are associates if they are associated with each other.
(3)
The following are associated with each other—
(a)
an individual and the individual’s spouse or civil partner or relative,
20
(b)
an individual and a spouse or civil partner of a relative of the
individual,
(c)
an individual and a relative of the individual’s spouse or civil partner,
(d)
an individual and a spouse or civil partner of a relative of the
individual’s spouse or civil partner.
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(4)
The following are associated with each other—
(a)
a person as trustee of a settlement and an individual who (in relation to
the settlement) is a settlor,
(b)
a person as trustee of a settlement and a person associated with an
individual who (in relation to the settlement) is a settlor.
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(5)
The following are associated with each other—
(a)
a person and a body of persons of which the person has control,
(b)
a person and a body of persons of which persons associated with the
person have control,
(c)
a person and a body of persons of which the person and persons
35
associated with the person have control,
(d)
two or more bodies of persons associated with the same person under
paragraphs (a) to (c).
(6)
In relation to a disposal by joint owners, the joint owners and any person
associated with any of them are associated with each other.
40
(7)
For the purposes of this section—
(a)
a relative is a brother, sister, ancestor or lineal descendant,
(b)
a body of persons includes a partnership, and

Corporation Tax Bill
Part 19 — Sale and lease-back etc
Chapter 4 — Leased assets: capital sums
435

(c)
“settlement” and “settlor” have the meanings given by section 620 of
ITTOIA 2005.
883
Capital sum
For the purposes of this Chapter a capital sum is any sum of money, or any
money’s worth, except so far as it or any part of it—
5
(a)
is to be treated for corporation tax purposes as a receipt to be taken into
account in calculating the profits or losses of a trade, or
(b)
is (apart from this Chapter) chargeable to corporation tax under or by
virtue of any provision to which section 1173 applies (miscellaneous
charges).
10
884
Lease
(1)
This section applies for the purposes of this Chapter.
(2)
A lease is (in relation to an asset) an agreement or arrangement under which
payments are made for the use of or otherwise in respect of the asset.
(3)
In particular it includes an agreement or arrangement under which the
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payments (or any of them) represent instalments of a purchase price or
payments towards it.
885
Relevant asset
For the purposes of this Chapter a relevant asset is any description of property
or rights other than land or an interest in land.
20
886
Relevant tax relief
For the purposes of this Chapter each of the following is a deduction by way of
relevant tax relief—
(a)
a deduction in calculating profits or losses of a trade for corporation tax
purposes,
25
(b)
a deduction in calculating any loss for which relief is given under
section 91 (losses from miscellaneous transactions), or in calculating
profits or gains chargeable to corporation tax under or by virtue of any
provision to which section 1173 applies (miscellaneous charges),
(c)
a deduction under section 76 of ICTA (insurance companies),
30
(d)
a deduction under section 1219 of CTA 2009 (expenses of management
of a company’s investment business),
(e)
a deduction in calculating profits or losses of a trade, profession or
vocation for income tax purposes,
(f)
a deduction in calculating any loss for which relief is allowed under
35
section 152 of ITA 2007 (losses from miscellaneous transactions), or in
calculating profits or other income or gains chargeable to income tax
under or by virtue of any provision to which section 1016 of that Act
applies, and
(g)
a deduction from earnings allowed under section 336 of ITEPA 2003
40
(expenses) or allowed in calculating losses in an employment for
income tax purposes.

Corporation Tax Bill
Part 20 — Tax avoidance involving leasing plant or machinery
Chapter 1 — Restrictions on use of losses in leasing partnerships
436

Part 20
Tax avoidance involving leasing plant or machinery
Chapter 1
Restrictions on use of losses in leasing partnerships
887
When restrictions on leasing partnership losses under this Chapter apply
5
(1)
The restrictions in section 888 (restrictions on leasing partnership losses) apply
if—
(a)
a company carries on a business in respect of which the company is
within the charge to corporation tax,
(b)
the company carries on the business in partnership with other persons
10
in an accounting period of the partnership,
(c)
the business (“the leasing business”) is, on any day in that period, a
business of leasing plant or machinery,
(d)
the company incurs a loss in its notional business in any accounting
period of the company comprised (wholly or partly) in the accounting
15
period of the partnership, and
(e)
the interest of the company in the leasing business during the
accounting period of the partnership is not determined on an allowable
basis (see subsections (2) to (4)).
(2)
The interest of the company in the leasing business during the accounting
20
period of the partnership is determined on an allowable basis if (and only if)
the condition in subsection (3) is met.
(3)
The condition is that for the purposes of sections 1262 to 1264 of CTA 2009
(allocation of firm’s profits between partners)—
(a)
the company’s share in the profits or loss of the leasing business for that
25
period is determined wholly by reference to a single percentage, and
(b)
the company’s share in any relevant capital allowances for that period
is determined wholly by reference to the same percentage.
(4)
For the purposes of subsection (3) “profits” does not include chargeable gains.
(5)
In this section “business of leasing plant or machinery” has the same meaning
30
as in Chapter 4 of Part 9 (sales of lessors: leasing business carried on by a
company in partnership) (see sections 410 to 414).
(6)
For the meaning of other expressions used in this section or section 888, see
section 889.
888
Restrictions on leasing partnership losses
35
(1)
The restrictions in subsections (2) to (4) apply in respect of so much of the loss
incurred by the company in its notional business as derives from any relevant
capital allowances (“the restricted part of the loss”).
(2)
Relief is not to be given to the company under any relevant loss relief provision
in respect of the restricted part of the loss, except by way of set off against any
40
relevant leasing income.