Finance Bill

House of Commons

Session 2009 - 10
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Finance Bill

Finance Bill
Schedule 5 — Capital allowance buying
77

      (3)
“An unconditional obligation” means an obligation which may not be varied
or extinguished by the exercise of a right (whether or not under the contract).
Schedule 5
Section 27

Capital allowance buying
1
Part 2 of CAA 2001 (plant and machinery allowances) is amended as follows.
5
2
After Chapter 16 insert—
“Chapter 16A
Avoidance involving allowance buying
Introduction
212A
Scope of Chapter
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  This Chapter provides for restrictions on the ways in which effect
may be given to an allowance in certain circumstances where there
has been a qualifying change in relation to a company (“C”).
212B
Where Chapter applies
(1)
This Chapter applies where—
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(a)
C carries on a trade (“the relevant trade”) (whether or not in
partnership with another person or other persons),
(b)
there is a qualifying change in relation to C on any day (“the
relevant day”),
(c)
C, or (where the relevant trade is carried on in partnership)
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the partnership (“P”), has a relevant excess of allowances in
relation to the relevant trade, and
(d)
the qualifying change has an unallowable purpose.
(2)
Sections 212C to 212I specify when there is a qualifying change in
relation to C on the relevant day.
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(3)
Sections 212J to 212L specify when C or P has a relevant excess of
allowances in relation to the relevant trade.
(4)
Section 212M specifies when the qualifying change has an
unallowable purpose.
(5)
Sections 212N to 212S make provision about what happens when this
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Chapter applies.
Qualifying change
212C
When there is qualifying change in relation to C
(1)
There is a qualifying change in relation to C on the relevant day if one
or more of conditions A to D is met.
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(2)
Condition A is that—

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Schedule 5 — Capital allowance buying
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(a)
the principal company or companies of C at the beginning of
the relevant day is not, or are not, the same as at the end of
that day, or
(b)
there is no principal company of C at the beginning of the
relevant day but there is one, or are more than one, at the end
5
of the relevant day.
(3)
Condition B is that—
(a)
any principal company of C is a consortium principal
company (“CPC”), and
(b)
CPC’s ownership proportion at the end of the relevant day is
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more than at the beginning of the relevant day.
(4)
Condition C is that on the relevant day—
(a)
C ceases to carry on the whole or part of the relevant trade,
and
(b)
it begins to be carried on in partnership by two or more
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companies,

in circumstances in which Chapter 1 of Part 22 of CTA 2010 (transfers
of trade without change of ownership) applies in relation to the
transfer of the relevant trade.
(5)
Condition D is that—
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(a)
the relevant trade is, at the beginning of the relevant day,
carried on by C in partnership, and
(b)
C’s relevant percentage share in the relevant trade at the end
of the relevant day is less than at the beginning of the relevant
day (or is nil).
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212D
Guide to sections explaining section 212C
(1)
Section 212E explains—
(a)
what are principal companies of C, and
(b)
which are consortium principal companies of C,

for the purposes of section 212C(2) and (3).
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(2)
Section 212F explains—
(a)
when a company is owned by a consortium, and
(b)
who are the members of the consortium,

for the purposes of section 212E.
(3)
Section 212G explains the meaning of “qualifying 75% subsidiary”
35
for the purposes of sections 212E and 212F.
(4)
Section 212H explains the meaning of “ownership proportion” in
section 212C(3).
(5)
Section 212I explains the meaning of “relevant percentage share” in
section 212C(5).
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212E
Principal companies
(1)
A company (“U”) is a principal company of C if—
(a)
C is a qualifying 75% subsidiary of U, and
(b)
U is not a qualifying 75% subsidiary of another company.

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Schedule 5 — Capital allowance buying
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(2)
A company (“V”) is a principal company of C if—
(a)
C is a qualifying 75% subsidiary of U,
(b)
U is a qualifying 75% subsidiary of V, and
(c)
V is not a qualifying 75% subsidiary of another company.
(3)
If V is a qualifying 75% subsidiary of another company (“W”), W is a
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principal company of C unless W is a qualifying 75% subsidiary of
another company, and so on.
(4)
A company (“X”) is a principal company of C if—
(a)
C is owned by a consortium of which X is a member, or
(b)
C is a qualifying 75% subsidiary of a company owned by a
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consortium of which X is a member,

and X is not a qualifying 75% subsidiary of another company.
(5)
A company (“Y”) is a principal company of C if—
(a)
C is owned by a consortium of which X is a member, or
(b)
C is a qualifying 75% subsidiary of a company owned by a
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consortium of which X is a member,

and X is a qualifying 75% subsidiary of Y but Y is not a qualifying
75% subsidiary of another company.
(6)
If Y is a qualifying 75% subsidiary of another company (“Z”), Z is a
principal company of C unless Z is a qualifying 75% subsidiary of
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another company, and so on.
(7)
A company that is a principal company of C by virtue of any of
subsections (4) to (6) is a consortium principal company of C.
212F
When company is owned by consortium and consortium members
(1)
This section defines what a company being owned by, or a member
25
of, a consortium means for the purposes of section 212E.
(2)
A company is owned by a consortium if—
(a)
it is not a qualifying 75% subsidiary of another company,
(b)
at least 75% of its ordinary share capital is beneficially owned
between them by other companies, and
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(c)
none of those other companies owns less than 5% of that
capital.
(3)
Those other companies are the members of the consortium.
212G
Qualifying 75% subsidiaries
(1)
For the purposes of sections 212E and 212F a company (“the
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subsidiary company”) is a qualifying 75% subsidiary of another
company (“the parent company”) if condition 1 or 2 is met and
condition 3 is met.
(2)
Condition 1 is that—
(a)
the subsidiary company has ordinary share capital, and
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(b)
the subsidiary company is a 75% subsidiary of the parent
company (see section 1154(3) of CTA 2010).
(3)
Condition 2 is that—

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Schedule 5 — Capital allowance buying
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(a)
the subsidiary company does not have ordinary share capital,
and
(b)
the parent company has control of the subsidiary company.
(4)
Condition 3 is that the parent company—
(a)
is beneficially entitled to at least 75% of any profits available
5
for distribution to equity holders of the subsidiary company,
and
(b)
would be beneficially entitled to at least 75% of any assets of
the subsidiary company available for distribution to its
equity holders on a winding-up.
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(5)
Chapter 6 of Part 5 of CTA 2010 (equity holders and profits or assets
available for distribution) applies for the purposes of subsection (4)
as that Chapter applies for the purposes of section 151(4)(a) and (b)
of that Act (meaning of “75% subsidiary”).
(6)
But in a case where the subsidiary company does not have ordinary
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share capital, Chapter 6 of Part 5 of that Act applies for those
purposes as if the members of that company were equity holders of
that company for the purposes of that Chapter.
212H
Ownership proportion
(1)
For the purposes of section 212C(3) CPC’s “ownership proportion” is
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the lowest of—
(a)
the percentage of the ordinary share capital of C that is
beneficially owned by CPC,
(b)
the percentage to which CPC is beneficially entitled of any
profits available for distribution to equity holders of C, and
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(c)
the percentage to which CPC would be beneficially entitled
of any assets of C available for distribution to its equity
holders on a winding-up.
(2)
Chapter 6 of Part 5 of CTA 2010 applies for the purposes of
subsection (1) as that Chapter applies for the purposes of section
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143(3)(b) and (c) (condition 1: surrendering company owned by
consortium) and section 144(3)(b) and (c) (condition 1: claimant
company owned by consortium) of that Act.
(3)
But in a case where the subsidiary company does not have ordinary
share capital, Chapter 6 of Part 5 of that Act applies for those
35
purposes as if the members of that company were equity holders of
that company for the purposes of that Chapter.
212I
Relevant percentage share
(1)
For the purposes of section 212C(5) C’s “relevant percentage share”
is C’s percentage share in the profits or losses of the trade.
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(2)
For this purpose C’s percentage share in the profits or losses of a
trade at any time is determined on a just and reasonable basis.
(3)
In making that determination regard must be had, in particular, to
any matter that would be taken into account in determining under
section 1262 of CTA 2009 (but without regard to sections 1263 and
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1264 of that Act) the company’s share at that time in the profits or
losses of the trade.