Finance Bill

House of Commons

Session 2009 - 10
Internet Publications
Other Bills before Parliament

Finance Bill

Finance Bill
Schedule 6 — Leased assets
88

(4)
For this purpose—
(a)
the lessor’s income from the asset is the total of all the
amounts that—
(i)
have been received by the lessor, or it is reasonable to
expect the lessor will receive, in connection with the
5
lease, and
(ii)
have been brought into account by the lessor, or it is
reasonable to expect the lessor will bring into account,
as income in computing profits chargeable to tax, and
(b)
the residual value of the asset is what it is reasonable to
10
expect will be the market value of the lessor’s interest in the
asset immediately after the termination of the lease.
(5)
In determining the lessor’s income from the asset, exclude—
(a)
disposal receipts brought, or to be brought, into account
under Part 2, and
15
(b)
so much of any amount as represents charges for services or
qualifying UK or foreign tax (within the meaning of section
70YE) to be paid by the lessor.
(6)
Where capital expenditure has previously been incurred by the
lessor on the provision of the asset, the reference in subsection (2) to
20
the lessor’s qualifying expenditure on the asset is to be read as a
reference to the total amount of the lessor’s qualifying expenditure
on the asset.
(7)
The following provisions supplement this section—
(a)
section 228MB provides for the calculation of “present
25
value”, and
(b)
section 228MC defines what is meant by a rental rebate.
(8)
In this section and sections 228MB and 228MC “lease” includes any
arrangements which provide for plant or machinery to be leased or
otherwise made available by a person (“the lessor”) to another
30
person (“the lessee”).
228MB
Calculation of present value
(1)
For the purposes of section 228MA the “present value” of an amount
is to be calculated by using the interest rate implicit in the lease.
(2)
The general rule is that the interest rate implicit in the lease is the
35
interest rate that would apply in accordance with normal
commercial criteria, including, in particular, generally accepted
accounting practice (where applicable).
(3)
If the interest rate implicit in the lease cannot be determined in
accordance with subsection (2), it is taken to be 1% above LIBOR.
40
(4)
For this purpose—
(a)
LIBOR means the London interbank offered rate on the
relevant day for deposits for a term of 12 months in the
relevant currency,
(b)
the relevant day is the day on which the lease was entered
45
into (or if that was not a business day, the first business day
after that day), and

Finance Bill
Schedule 6 — Leased assets
89

(c)
the relevant currency is the currency in which rentals under
the lease are payable.
228MC
Rental rebate
(1)
For the purposes of section 228MA “rental rebate” means any sum
payable to the lessee that is calculated by reference to the termination
5
value of the asset.
(2)
The general rule is that the termination value of an asset is the value
of the asset at or about the time when the lease terminates.
(3)
Calculation by reference to the termination value includes
calculation by reference to any one or more of—
10
(a)
the proceeds of sale, if the asset is sold,
(b)
any insurance proceeds, compensation or similar sums in
respect of the asset, and
(c)
an estimate of the market value of the asset.
(4)
Calculation by reference to the termination value also includes—
15
(a)
determination in a way which, or by reference to factors or
criteria which, might reasonably be expected to produce a
broadly similar result to calculation by reference to the
termination value, or
(b)
any other form of calculation indirectly by reference to the
20
termination value.”
      (2)
The amendment made by sub-paragraph (1) has effect in relation to capital
expenditure incurred on or after 9 December 2009.
Restriction of deduction for rental rebate
2     (1)
In Chapter 4 of Part 2 of ITTOIA 2005 (trading income: rules restricting
25
deductions), after section 55A insert—
“Rental rebates
55B
Rental rebates
(1)
Where plant or machinery (“the asset”) is leased and a rental rebate
is payable by the lessor, the amount of the deduction allowable in
30
respect of the rebate is limited to—
(a)
the amount of the lessor’s income from the lease, or
(b)
in the case of a finance lease, that amount excluding the
finance charge.
(2)
“Rental rebate” means any sum payable to the lessee that is
35
calculated by reference to the termination value of the asset.
(3)
For this purpose—
(a)
the termination value of an asset is the value of the asset at or
about the time when the lease terminates,
(b)
calculation by reference to the termination value includes
40
calculation by reference to any one or more of—
(i)
the proceeds of sale, if the asset is sold,

Finance Bill
Schedule 6 — Leased assets
90

(ii)
any insurance proceeds, compensation or similar
sums in respect of the asset,
(iii)
an estimate of the market value of the asset, and
(c)
calculation by reference to the termination value also
includes—
5
(i)
determination in a way which, or by reference to
factors or criteria which, might reasonably be
expected to produce a broadly similar result to
calculation by reference to the termination value, or
(ii)
any other form of calculation indirectly by reference
10
to the termination value.
(4)
For the purposes of this section—
(a)
the income of the lessor from the lease is the total of all the
amounts receivable in connection with the lease that have
been brought into account in calculating the lessor’s income
15
for income tax purposes, excluding—
(i)
disposal receipts brought into account under Part 2 of
CAA 2001 (see section 60(1) of that Act), and
(ii)
so much of any amount as represents charges for
services or qualifying UK or foreign tax (within the
20
meaning of section 70YE of that Act) to be paid by the
lessor, and
(b)
the finance charge, in relation to a finance lease, is—
(i)
if the lease is one that, under generally accepted
accounting practice, falls (or would fall) to be treated
25
as a loan, so much of the rentals under the lease as fall
(or would fall) to be treated as interest, or
(ii)
in any other case, the amount that, in accordance with
generally accepted accounting practice, falls (or
would fall) to be treated as the gross return on
30
investment.
(5)
Where the asset is acquired by the lessor in a transaction in relation
to which an election is made under section 266 of CAA 2001 (election
where predecessor and successor are connected persons), this
section applies as if the successor had been the lessor at all material
35
times and everything done to or by the predecessor had been done to
or by the successor.
(6)
Where the whole or part of a rental rebate is disallowed under this
section as a deduction in computing profits—
(a)
the amount disallowed, or
40
(b)
if less, the amount by which the rental rebate exceeds the
amount of capital expenditure incurred by the lessor,

may be treated for the purposes of capital gains tax as an allowable
loss accruing to the lessor on the termination of the lease.

That allowable loss is deductible only from chargeable gains
45
accruing to the lessor on the disposal of the asset.
(7)
This section does not apply to a long funding finance lease (see
section 148C).”
      (2)
In Chapter 4 of Part 3 of CTA 2009 (trading income: rules restricting

Finance Bill
Schedule 6 — Leased assets
91

deductions), after section 60 insert—
“60A
Rental rebates
(1)
Where plant or machinery (“the asset”) is leased and a rental rebate
is payable by the lessor, the amount of the deduction allowable in
respect of the rebate is limited to—
5
(a)
the amount of the lessor’s income from the lease, or
(b)
in the case of a finance lease, that amount excluding the
finance charge.
(2)
“Rental rebate” means any sum payable to the lessee that is
calculated by reference to the termination value of the asset.
10
(3)
For this purpose—
(a)
the termination value of an asset is the value of the asset at or
about the time when the lease terminates,
(b)
calculation by reference to the termination value includes
calculation by reference to any one or more of—
15
(i)
the proceeds of sale, if the asset is sold,
(ii)
any insurance proceeds, compensation or similar
sums in respect of the asset, and
(iii)
an estimate of the market value of the asset, and
(c)
calculation by reference to the termination value also
20
includes—
(i)
determination in a way which, or by reference to
factors or criteria which, might reasonably be
expected to produce a broadly similar result to
calculation by reference to the termination value, or
25
(ii)
any other form of calculation indirectly by reference
to the termination value.
(4)
For the purposes of this section—
(a)
the income of the lessor from the lease is the total of all the
amounts receivable in connection with the lease that have
30
been brought into account in calculating the lessor’s income
for corporation tax purposes, excluding—
(i)
disposal receipts brought into account under Part 2 of
CAA 2001 (see section 60(1) of that Act), and
(ii)
so much of any amount as represents charges for
35
services or qualifying UK or foreign tax (within the
meaning of section 70YE of that Act) to be paid by the
lessor, and
(b)
the finance charge, in relation to a finance lease, is—
(i)
if the lease is one that, under generally accepted
40
accounting practice, falls (or would fall) to be treated
as a loan, so much of the rentals under the lease as fall
(or would fall) to be treated as interest, or
(ii)
in any other case, the amount that, in accordance with
generally accepted accounting practice, falls (or
45
would fall) to be treated as the gross return on
investment.
(5)
Where the asset is acquired by the lessor in a transaction—

Finance Bill
Schedule 6 — Leased assets
92

(a)
to which section 948 of CTA 2010 applies (modified
application of CAA 2001 in case of transfer of trade without
change of ownership), or
(b)
in relation to which an election is made under section 266 of
CAA 2001 (election where predecessor and successor are
5
connected persons),

this section applies as if the successor had been the lessor at all
material times and everything done to or by the predecessor had
been done to or by the successor.
(6)
Where the whole or part of a rental rebate is disallowed under this
10
section as a deduction in computing profits—
(a)
the amount disallowed, or
(b)
if less, the amount by which the rental rebate exceeds the
amount of capital expenditure incurred by the lessor,

may be treated for the purposes of corporation tax in respect of
15
chargeable gains as an allowable loss accruing to the lessor on the
termination of the lease.

That allowable loss is deductible only from chargeable gains
accruing to the lessor on the disposal of the asset.
(7)
This section does not apply to a long funding finance lease (see
20
section 362 of CTA 2010).”
      (3)
The amendments made by this paragraph have effect in relation to rental
rebates payable on or after 9 December 2009.
Arrangements reducing disposal value of asset
3     (1)
In Chapter 5 of Part 2 of CAA 2001 (plant and machinery: general provisions
25
about charges and allowances), after section 64 insert—
“64A
Leased assets: arrangements reducing disposal value of asset
(1)
Where—
(a)
plant or machinery (“the asset”) is subject to a lease,
(b)
a disposal event occurs with the result that a disposal value
30
in respect of the asset is to be brought into account under Item
1, 2 or 7 of the Table in section 61(2), and
(c)
arrangements have been entered into that have the effect of
reducing the disposal value of the asset in so far as it is
attributable to rentals payable under the lease,
35

the disposal value is to be determined as if the arrangements had not
been entered into.
(2)
Subsection (1) does not apply if—
(a)
the arrangements take the form of a transfer of relevant
receipts within section 809AZA of ITA 2007 and the relevant
40
amount has been treated as income under section 809AZB of
that Act, or
(b)
the arrangements take the form of a transfer of relevant
receipts within section 752 of CTA 2010 and the relevant
amount has been treated as income under section 753 of that
45
Act.”

Finance Bill
Schedule 7 — Charities and community amateur sports clubs: definitions
Part 1 — Definition of “charity”, “charitable company” and “charitable trust”
93

      (2)
The amendment made by sub-paragraph (1) has effect in relation to disposal
events taking place on or after 9 December 2009.
Schedule 7
Section 31

Charities and community amateur sports clubs: definitions
Part 1
5
Definition of “charity”, “charitable company” and “charitable trust”
Definition of “charity” etc
1     (1)
For the purposes of the enactments to which this Part applies “charity”
means a body of persons or trust that—
(a)
is established for charitable purposes only,
10
(b)
meets the jurisdiction condition (see paragraph 2),
(c)
meets the registration condition (see paragraph 3), and
(d)
meets the management condition (see paragraph 4).
      (2)
For the purposes of the enactments to which this Part applies—
“charitable company” means a charity that is a body of persons;
15
“charitable trust” means a charity that is a trust.
      (3)
Sub-paragraphs (1) and (2) are subject to any express provision to the
contrary.
      (4)
For the meaning of “charitable purpose”, see section 2 of the Charities Act
2006 (which—
20
(a)
applies regardless of where the body of persons or trust in question
is established, and
(b)
for this purpose forms part of the law of each part of the United
Kingdom (see section 80(3) to (6) of that Act)).
Jurisdiction condition
25
2     (1)
A body of persons or trust meets the jurisdiction condition if it falls to be
subject to the control of—
(a)
a relevant UK court in the exercise of its jurisdiction with respect to
charities, or
(b)
any other court in the exercise of a corresponding jurisdiction under
30
the law of a relevant territory.
      (2)
In sub-paragraph (1)(a) “a relevant UK court” means—
(a)
the High Court,
(b)
the Court of Session, or
(c)
the High Court in Northern Ireland.
35
      (3)
In sub-paragraph (1)(b) “a relevant territory” means—
(a)
a member State other than the United Kingdom, or
(b)
a territory specified in regulations made by the Commissioners for
Her Majesty's Revenue and Customs.

Finance Bill
Schedule 7 — Charities and community amateur sports clubs: definitions
Part 1 — Definition of “charity”, “charitable company” and “charitable trust”
94

      (4)
Regulations under this paragraph are to be made by statutory instrument.
      (5)
A statutory instrument containing regulations under this paragraph is
subject to annulment in pursuance of a resolution of the House of Commons.
Registration condition
3     (1)
A body of persons or trust meets the registration condition if—
5
(a)
in the case of a body of persons or trust that is a charity within the
meaning of the Charities Act 1993, condition A is met, and
(b)
in the case of any other body of persons or trust, condition B is met.
      (2)
Condition A is that the body of persons or trust has complied with any
requirement to be registered in the register of charities kept under section 3
10
of the Charities Act 1993.
      (3)
Condition B is that the body of persons or trust has complied with any
requirement under the law of a territory outside England and Wales to be
registered in a register corresponding to that mentioned in sub-paragraph
(2).
15
Management condition
4     (1)
A body of persons or trust meets the management condition if its managers
are fit and proper persons to be managers of the body or trust.
      (2)
In this paragraph “managers”, in relation to a body of persons or trust,
means the persons having the general control and management of the
20
administration of the body or trust.
Periods over which management condition treated as met
5     (1)
This paragraph applies in relation to any period throughout which the
management condition is not met.
      (2)
The management condition is treated as met throughout the period if the
25
Commissioners for Her Majesty’s Revenue and Customs consider that—
(a)
the failure to meet the management condition has not prejudiced the
charitable purposes of the body or trust, or
(b)
it is just and reasonable in all the circumstances for the condition to
be treated as met throughout the period.
30
Publication of names and addresses of bodies or trusts regarded by HMRC as charities
6
Her Majesty’s Revenue and Customs may publish the name and address of
any body of persons or trust that appears to them to meet, or at any time to
have met, the definition of a charity in paragraph 1.
Enactments to which this Part applies
35
7
The enactments to which this Part applies are the enactments relating to—
(a)
income tax
(b)
capital gains tax,
(c)
corporation tax,
(d)
value added tax,
40