Corporation Tax Bill

House of Commons

Session 2009 - 10
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Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 20 — Tax avoidance involving leasing plant or machinery
Chapter 2 — Capital payments in respect of leases treated as income
437

(3)
If the leasing business is a trade, relief is not to be given to the company under
section 37 (relief for trade losses against total profits) in respect of the restricted
part of the loss.
(4)
The restricted part of the loss is not available for set off by way of group relief
in accordance with Chapter 2 of Part 5 (surrender of company’s losses etc for
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an accounting period).
(5)
For the purpose of determining how much of a loss derives from any relevant
capital allowances, the loss is to be calculated on the basis that any relevant
capital allowances are the final amounts to be deducted.
(6)
In this section—
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“the leasing business” has the same meaning as in section 887,
“relevant leasing income” means any income of the company’s notional
business deriving from any lease which—
(a)
is a lease of plant or machinery, and
(b)
was entered into before the end of the accounting period of the
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company in which the loss in the notional business was
incurred, and
“relevant loss relief provision” means—
(a)
section 45 (carry forward of trade loss against subsequent trade
profits),
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(b)
section 62 (relief for losses made in UK property business),
(c)
section 63 (company with investment business ceasing to carry
on UK property business),
(d)
section 66 (relief for losses made in overseas property business),
and
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(e)
section 91 (relief for losses from miscellaneous transactions).
889
Interpretation of Chapter
(1)
In this Chapter—
“lease” includes an underlease, sublease, tenancy or licence and an
agreement for any of those things,
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“notional business”, in relation to a company, means the business the
profits or losses of which are determined, in relation to the company,
under section 1259 of CTA 2009 (calculation of firm’s profits and
losses),
“plant or machinery” has the same meaning as in Part 2 of CAA 2001, and
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“relevant capital allowance” means an allowance under that Part in
respect of expenditure incurred on the provision of plant or machinery
wholly or partly for the purposes of the leasing business.
(2)
In this section “the leasing business” has the same meaning as in section 887.
Chapter 2
40
Capital payments in respect of leases treated as income
890
Capital payments in respect of leases treated as income
(1)
This section applies if—

Corporation Tax Bill
Part 20 — Tax avoidance involving leasing plant or machinery
Chapter 2 — Capital payments in respect of leases treated as income
438

(a)
there is an unconditional obligation, under a lease of plant or
machinery or a relevant arrangement, to make a relevant capital
payment at any time, or
(b)
a relevant capital payment is made under such a lease or arrangement
otherwise than in pursuance of such an obligation.
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(2)
The lessor is treated for corporation tax purposes as receiving income
attributable to the lease of an amount equal to the amount of the capital
payment.
(3)
If subsection (1)(a) applies, the income is treated as income for the period of
account in which there is first an obligation of the kind mentioned there.
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(4)
If subsection (1)(b) applies, the income is treated as income for the period of
account in which the capital payment is made.
(5)
For the meaning of “capital payment” and “relevant capital payment”, see
section 893.
(6)
For the meaning of other expressions used in this Chapter, see section 894.
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891
Apportionments for leases of plant or machinery and other property
(1)
This section applies if section 890 applies in relation to a lease of plant or
machinery and other property (see section 894(3)).
(2)
The relevant capital payment is to be apportioned, on a just and reasonable
basis, between—
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(a)
the plant or machinery, and
(b)
the other property.
(3)
If any income attributable to any of the plant or machinery and received by the
lessor would be chargeable to tax under Chapter 3 of Part 4 of CTA 2009 as
profits of a UK property business, that plant or machinery is treated as falling
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within subsection (2)(b) (and not subsection (2)(a)).
(4)
Section 890(2) has effect as if the reference to the amount of the capital payment
were to such amount as is apportioned under subsection (2) in respect of the
plant or machinery within subsection (2)(a).
892
Deduction where failure to make relevant capital payment expected
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(1)
This section applies for corporation tax purposes if—
(a)
section 890 applies as a result of subsection (1)(a) of that section, and
(b)
at any time the lessor reasonably expects that the relevant capital
payment will not be paid or will not be paid in full.
(2)
For the purposes of calculating the profits of the lessor, a deduction is allowed
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for the period of account which includes that time.
(3)
The amount of the deduction is equal to the amount reasonably expected not
to be paid.
(4)
No other deduction is allowed in respect of the matters mentioned in
subsection (1)(b).
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Corporation Tax Bill
Part 20 — Tax avoidance involving leasing plant or machinery
Chapter 2 — Capital payments in respect of leases treated as income
439

893
Meaning of “capital payment”, “relevant capital payment” etc
(1)
This section gives the meaning of “capital payment”, “relevant capital
payment” and references to payment for the purposes of this Chapter.
(2)
“Capital payment” means any payment except one which, if made to the
lessor—
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(a)
would fall to be included in a calculation of the lessor’s income for
corporation tax purposes, or
(b)
would so fall but for section 360 (lessor under long funding finance
lease: rental earnings).
(3)
A capital payment, in relation to a lease or relevant arrangement, is “relevant”
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if condition A or B is met (but this is subject to subsections (6) and (7)).
(4)
Condition A is that the capital payment is payable (or paid), directly or
indirectly, by or on behalf of the lessee to the lessor or another person on the
lessor’s behalf in connection with—
(a)
the grant, assignment, novation or termination of the lease, or
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(b)
any provision of the lease or relevant arrangement (including the
variation or waiver of any such provision).
(5)
Condition B is that rentals payable under the lease are less than, or payable
later than, they might reasonably be expected to be if there were no obligation
to make the capital payment and it were not made.
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(6)
A capital payment is not “relevant” so far as it—
(a)
reduces the amount of expenditure incurred by the lessor for the
purposes of CAA 2001 in respect of the plant or machinery in question
or would reduce it but for section 536 of CAA 2001 (contributions not
made by public bodies and not eligible for tax relief), or
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(b)
is compensation for loss resulting from damage to, or damage caused
by, the plant or machinery in question.
(7)
If—
(a)
a capital payment is an initial payment under a long funding lease for
the purposes of Part 2 of CAA 2001 (see section 70YI of that Act), and
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(b)
under section 61 of that Act (disposal events and disposal values) the
commencement of the term of the lease (as defined in section 70YI of
that Act) is an event that requires the lessor to bring a disposal value
into account,

the capital payment is only “relevant” so far as it exceeds the amount that is the
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disposal value for the purposes of Part 2 of that Act.
(8)
References to payment include the provision of value by any means other than
the making of a payment.
(9)
Accordingly—
(a)
references to the making of a payment include the passing of value by
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any other means, and
(b)
references to the amount of the payment include the value passed.
894
Other interpretation of Chapter
(1)
This section applies for the purposes of this Chapter.

Corporation Tax Bill
Part 21 — Leasing arrangements: finance leases and loans
Chapter 1 — Introduction
440

(2)
“Lease” includes—
(a)
a licence, and
(b)
the letting of a ship or aircraft on charter or the letting of any other asset
on hire,

and “lessor” and “lessee” must be read accordingly.
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(3)
“Lease of plant or machinery” includes a lease of plant or machinery and other
property, but does not include a lease to which subsection (4) or (5) applies.
(4)
This subsection applies to a lease if any income attributable to it and received
by the lessor would be chargeable to tax under Chapter 3 of Part 4 of CTA 2009
as profits of a UK property business.
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(5)
This subsection applies to a lease of plant or machinery if the lessor has
incurred on the plant or machinery what would be qualifying expenditure
within the meaning of Part 2 of CAA 2001 but for section 34A of that Act
(expenditure on plant or machinery for long funding leasing not qualifying
expenditure).
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(6)
“Relevant arrangement” means any agreement or arrangement relating to a
lease of plant or machinery, including one made before the lease is entered into
or after it has ended.
(7)
Accordingly, “lessor” and “lessee” include prospective and former lessors and
lessees.
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Part 21
Leasing arrangements: finance leases and loans
Chapter 1
Introduction
Introduction
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895
Overview of Part
(1)
This Part makes provision for corporation tax purposes about the taxation of
leasing arrangements.
(2)
Chapter 2 makes provision in relation to certain arrangements involving the
lease of assets where the conditions in section 902 are or have been met, so far
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as the lease is not regarded as a long funding lease for the purposes of Part 2 of
CAA 2001 in accordance with Chapter 6A of that Part (see sections 901 to 904).
(3)
Chapter 3 makes provision in relation to arrangements involving the lease of
assets that are not within Chapter 2, so far as the lease is not so regarded (see
sections 925 and 927).
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(4)
The remaining provisions of this Chapter explain some expressions about rent
for the purposes of this Part.
(5)
Chapter 4 contains further provisions supplementing this Part, including more
about its interpretation.