House of Commons portcullis
House of Commons
Session 2009 - 10
Internet Publications
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.

20

(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

15

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

20

(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

35

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

40

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

15

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—

25

(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,

40

 
 

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.

25

(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.

30

(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

15

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.

 
 

 
previous section contents continue
 
House of Commons home page Houses of Parliament home page House of Lords home page search page enquiries

© Parliamentary copyright 2010
Revised 28 January 2010