Corporation Tax Bill

House of Commons

Session 2009 - 10
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Corporation Tax Bill

Corporation Tax Bill
Part 21 — Leasing arrangements: finance leases and loans
Chapter 3 — Other finance leases
455

Chapter 3
Other finance leases
Introduction
925
Introduction to Chapter
(1)
This Chapter applies to arrangements involving the lease of an asset that—
5
(a)
fall to be treated, in accordance with generally accepted accounting
practice, as a finance lease or loan, but
(b)
are not arrangements to which Chapter 2 applies.
(2)
It does not matter whether the arrangements are or have been entered into by
companies or other persons.
10
926
Purpose of this Chapter
(1)
The main purpose of this Chapter where there are arrangements to which this
Chapter applies is, in relation to a company entitled to the lessor’s interest
under the lease of the asset, to apply the charge to corporation tax on income
to amounts determined as mentioned in subsection (2).
15
(2)
The amounts referred to in subsection (1) are determined by reference to the
amounts that fall for accounting purposes to be treated, in accordance with
generally accepted accounting practice, as the income return on and after 26
November 1996 on investment in respect of the finance lease or loan.
(3)
The amounts referred to in subsection (1) are also determined taking into
20
account the substance of the matter as a whole, including, in particular, the
state of affairs—
(a)
as between connected persons, or
(b)
within a group of companies,

as reflected or falling to be reflected in accounts of any of those persons or in
25
consolidated group accounts.
Current lessor taxed by reference to accountancy rental earnings
927
Leases to which this Chapter applies
(1)
This Chapter applies if—
(a)
a lease of an asset is or has been granted on or after 26 November 1996,
30
(b)
the lease forms part of a post-25 November 1996 scheme,
(c)
condition A in section 902 is or has been met at some time on or after 26
November 1996 in relation to the lease in a period of account of the
current lessor (“L”), and
(d)
Chapter 2 does not apply in relation to the lease because of the other
35
conditions in that section not all being, or having been, met as
mentioned in section 901.
(2)
For the meaning of “forms part of a post-25 November 1996 scheme”, see
section 930.

Corporation Tax Bill
Part 21 — Leasing arrangements: finance leases and loans
Chapter 3 — Other finance leases
456

(3)
This Chapter does not apply so far as, in relation to L, the lease falls to be
regarded as a long funding lease for the purposes of Part 2 of CAA 2001 (plant
and machinery allowances) in accordance with Chapter 6A of that Part
(interpretation of provisions about long funding leases) (see section 70G of that
Act).
5
(4)
If condition A in section 902 has been met at any time on or after 26 November
1996 in a period of account of the person who was at that time the lessor, it is
taken to continue to be met unless and until one of the conditions in subsection
(5) is met.
(5)
The conditions are that—
10
(a)
the asset ceases to be leased under the lease, or
(b)
the lessor’s interest under the lease is assigned to a person who is not
connected with any of the persons specified in subsection (6).
(6)
Those persons are—
(a)
the assignor,
15
(b)
any person who was the lessor at some time before the assignment, and
(c)
any person who at some time after the assignment becomes the lessor
pursuant to arrangements made by a person who was the lessor, or was
connected with the lessor, at some time before the assignment.
(7)
If at any time the person who was the lessor at that time was a person within
20
the charge to income tax—
(a)
the reference in subsection (4) to condition A in section 902 having been
met at that time includes a reference to condition A in section 614BC of
ITA 2007 having been so met, and
(b)
the reference in subsection (1)(d) to the other conditions in section 902
25
not having been met as mentioned in section 901 includes a reference to
the other conditions in section 614BC of that Act not having been met
as mentioned in section 614BB of that Act.
(8)
Nothing in subsection (4) prevents this Chapter from applying again in relation
to the lease where the lessor’s interest is assigned if the conditions for its
30
application are met after the assignment.
928
Current lessor taxed by reference to accountancy rental earnings
(1)
This section applies if, in the case of any period of account of the current lessor
(“L”)—
(a)
this Chapter applies in relation to the lease, and
35
(b)
the accountancy rental earnings in respect of the lease for that period of
account exceed the normal rent for that period.
(2)
For corporation tax purposes, L is treated as if in that period of account L had
been entitled to, and there had arisen to L, rent from the lease of an amount
equal to those accountancy rental earnings (instead of the normal rent referred
40
to in subsection (1)(b)).
(3)
Such rent from the lease of an asset is treated for corporation tax purposes—
(a)
as if it had accrued at an even rate throughout so much of the period of
account as falls within the period for which the asset is leased, and
(b)
as if L had become entitled to it as it accrued.
45

Corporation Tax Bill
Part 21 — Leasing arrangements: finance leases and loans
Chapter 4 — Supplementary provisions
457

Application of provisions of Chapter 2 for purposes of this Chapter
929
Application of provisions of Chapter 2 for purposes of this Chapter
Sections 906 to 916 apply for the purposes of this Chapter as they apply for the
purposes of Chapter 2, but taking the references in sections 907(1) and 910(1)(a)
to section 905 as references to section 928.
5
Chapter 4
Supplementary provisions
930
Pre-26 November 1996 schemes and post-25 November 1996 schemes
(1)
For the purposes of this Part, a lease of an asset—
(a)
forms part of a pre-26 November 1996 scheme if (and only if) the
10
conditions in subsection (2) or (3) are met, and
(b)
in any other case, forms part of a post-25 November 1996 scheme.
(2)
The conditions in this subsection are that—
(a)
a contract in writing for the lease of the asset was made before 26
November 1996,
15
(b)
either—
(i)
the contract was unconditional, or
(ii)
if the contract was conditional, the conditions were met before
that date, and
(c)
no terms remain to be agreed on or after that date.
20
(3)
The conditions in this subsection are that—
(a)
a contract in writing for the lease of the asset was made before 26
November 1996,
(b)
the condition in subsection (2)(b) or (c) was not met in the case of the
contract,
25
(c)
either—
(i)
the contract was unconditional, or
(ii)
if the contract was conditional, the conditions were met before
the end of the finalisation period or within such further period
as the Commissioners for Her Majesty’s Revenue and Customs
30
may allow in the particular case,
(d)
no terms remain to be agreed after the end of the finalisation period or
such further period as those Commissioners may so allow, and
(e)
the contract in its final form was not materially different from the
contract as it stood when it was made before 26 November 1996.
35
(4)
In subsection (3), “the finalisation period” means the period which ended with
the later of—
(a)
31 January 1997, and
(b)
the end of the period of six months beginning with the day after that on
which the contract was made as mentioned in subsection (3)(a).
40

Corporation Tax Bill
Part 21 — Leasing arrangements: finance leases and loans
Chapter 4 — Supplementary provisions
458

931
Time apportionment where periods of account do not coincide
(1)
Subsection (2) applies if a period of account of the lessor (“L”) does not coincide
with a period of account of a person connected with L.
(2)
Any amount which falls for the purposes of this Part to be found for L’s period
of account but by reference to the connected person is found by making such
5
apportionments as may be necessary between two or more periods of account
of the connected person.
(3)
Subsection (4) applies if a period of account of L does not coincide with a
period for which consolidated group accounts of a group of companies of
which L is a member fall to be prepared.
10
(4)
Any amount which falls for the purposes of this Part to be found for L’s period
of account but by reference to the consolidated group accounts is found by
making such apportionments as may be necessary between two or more
periods for which consolidated group accounts of the group fall to be
prepared.
15
(5)
Any apportionment under subsection (2) or (4) must be made in proportion to
the number of days in the respective periods that fall within L’s period of
account.
932
Periods of account and related periods of account and accounting periods
(1)
In this Part “period of account” means a period for which accounts are made
20
up.
(2)
Except for the purposes of sections 901 to 904 and subsection (3), in this Part
“period of account” does not include a period that begins before 26 November
1996.
(3)
But this Part applies in relation to a period of account that begins before 26
25
November 1996 and ends on or after that date as if—
(a)
so much of the period as falls before that date, and
(b)
so much of the period as falls on or after that date,

were separate periods of account.
(4)
For the purposes of this Part, an accounting period is related to a period of
30
account if the accounting period consists of or includes the whole or any part
of the period of account.
(5)
For the purposes of this Part a period of account is related to an accounting
period if the accounting period is related to the period of account.
933
Connected persons
35
(1)
For the purposes of this Part in its application as a result of any leasing
arrangements, if a person (“A”) is connected with another (“B”) at some time
during the relevant period A is treated as being connected with B throughout
that period.
(2)
The relevant period is the period that—
40
(a)
begins at the earliest time at which any of the arrangements were made,
and

Corporation Tax Bill
Part 21 — Leasing arrangements: finance leases and loans
Chapter 4 — Supplementary provisions
459

(b)
ends when the current lessor finally ceases to have an interest in the
asset or any arrangements relating to it.
934
Assets which represent the leased asset
(1)
For the purposes of this Part, the assets described in subsection (2) are treated
as representing the leased asset.
5
(2)
Those assets are—
(a)
any asset derived from the leased asset or created out of it,
(b)
any asset from which the leased asset was derived or out of which the
leased asset was created,
(c)
any asset derived from or created out of an asset within paragraph (b),
10
and
(d)
any asset that derives the whole or a substantial part of its value from
the leased asset or an asset that itself represents the leased asset.
935
Parent undertakings and consolidated group accounts
(1)
This Part has effect in relation to a body corporate that—
15
(a)
is a parent undertaking, but
(b)
for accounting purposes is not required to prepare consolidated group
accounts in accordance with generally accepted accounting practice,

as if it were so required.
(2)
For the purposes of subsection (1) it does not matter where the body corporate
20
is incorporated.
(3)
In subsection (1) “parent undertaking” is to be read in accordance with section
1162 of the Companies Act 2006.
936
Assessments and adjustments
All such assessments and adjustments must be made as are necessary to give
25
effect to this Part.
937
Interpretation of Part
In this Part, unless the context otherwise requires—
“accountancy rental earnings” has the meaning given by section 897(1),
“accountancy rental excess” is to be read—
30
(a)
for the purposes of Chapter 2, in accordance with section 907(1)
to (4), and
(b)
for the purposes of Chapter 3, in accordance with section 907(1)
to (4), as it has effect as a result of section 929,
“asset” means any form of property or rights,
35
“asset representing the leased asset” is to be read in accordance with
section 934,
“cumulative accountancy rental excess” is to be read—
(a)
for the purposes of Chapter 2, in accordance with section 907(5),
and
40
(b)
for the purposes of Chapter 3, in accordance with section 907(5)
as it has effect as a result of section 929,

Corporation Tax Bill
Part 21 — Leasing arrangements: finance leases and loans
Chapter 4 — Supplementary provisions
460

“cumulative normal rental excess” is to be read—
(a)
for the purposes of Chapter 2, in accordance with section 909(5),
and
(b)
for the purposes of Chapter 3, in accordance with section 909(5)
as it has effect as a result of section 929,
5
“the current lessor”, in relation to a lease of an asset, means the person
who is for the time being entitled to the lessor’s interest under the lease,
“finance lessor” means a person who for accounting purposes is treated,
in accordance with generally accepted accounting practice, as the
person with—
10
(a)
the grantor’s interest in relation to a finance lease, or
(b)
the lender’s interest in relation to a loan,
“for accounting purposes” means for the purposes of—
(a)
accounts of companies incorporated in any part of the United
Kingdom, or
15
(b)
consolidated group accounts for groups all the members of
which are companies so incorporated,
“lease”—
(a)
in relation to land, includes an underlease, sublease, tenancy or
licence, and any agreement for a lease, underlease, sublease,
20
tenancy or licence and, in the case of land outside the United
Kingdom, any interest corresponding to a lease as so defined,
and
(b)
in relation to any form of property or right other than land,
means any kind of agreement or arrangement under which
25
payments are made for the use of, or otherwise in respect of, an
asset,
and “rent” is to be read accordingly,
“the leasing arrangements”, in relation to a lease of an asset, means—
(a)
the lease,
30
(b)
any arrangements relating to or connected with the lease, and
(c)
any other arrangements of which the lease forms part,
and includes a reference to any of the leasing arrangements,
“the lessee”, in relation to a lease of an asset, means (except in the
expression “the lessee’s interest under the lease”) the person entitled to
35
the lessee’s interest under the lease,
“the lessor”, in relation to a lease of an asset, means (except in the
expression “the lessor’s interest under the lease”) the person entitled to
the lessor’s interest under the lease,
“major lump sum” is to be read in accordance with section 902(5),
40
“normal rent” is to be read in accordance with section 896,
“normal rental excess” is to be read—
(a)
for the purposes of Chapter 2, in accordance with section 909(1)
to (4), and
(b)
for the purposes of Chapter 3, in accordance with section 909(1)
45
to (4) as it has effect as a result of section 929,
“period of account” is to be read in accordance with section 932(1) to (3),
“post-25 November 1996 scheme” is to be read in accordance with section
930(1)(b),

Corporation Tax Bill
Part 22 — Miscellaneous provisions
Chapter 1 — Transfers of trade without a change of ownership
461

“pre-26 November 1996 scheme” is to be read in accordance with section
930(1)(a),
“related accounting period” is to be read in accordance with section
932(4),
“related period of account” is to be read in accordance with section 932(5),
5
“the rental earnings”, in relation to the lease of the asset and any period,
has the meaning given by section 898, and
“sum” includes any money or money’s worth (and “pay” and related
expressions are to be read accordingly).
Part 22
10
Miscellaneous provisions
Chapter 1
Transfers of trade without a change of ownership
Introduction
938
Overview of Chapter
15
(1)
This Chapter contains rules for cases where a trade is transferred between
companies within the charge to tax and certain conditions as to common
ownership of the trade are met.
(2)
Section 939 explains when there is a transfer of a trade for the purposes of this
Chapter.
20
(3)
Sections 940 to 943 contain provision about when this Chapter applies to a
transfer of a trade.
(4)
Sections 944 to 950 set out the effects of this Chapter in relation to a transfer to
which it applies.
(5)
Sections 951 to 953 contain supplementary provision.
25
939
Meaning of “transfer of a trade” and related expressions
(1)
This section applies for the purposes of this Chapter.
(2)
If, on a company ceasing to carry on a trade, another company begins to carry
it on, there is a transfer of a trade.
(3)
The trade that is transferred is referred to in this Chapter as “the transferred
30
trade”.
(4)
In relation to a transfer of a trade—
“the predecessor” means the company which ceases to carry on the trade,
and
“the successor” means the company which begins to carry on the trade.
35
(5)
In this Chapter, except in so far as the context otherwise requires—
(a)
references to a trade include an office, and
(b)
references to carrying on a trade include holding an office.