Office of Public Sector Information
PART 3 continued CHAPTER 9 continued
(1) CAA 2001 is amended as follows.
(2) In section 66 (list of provisions outside Chapter 5 of Part 2 about disposal values), after the entry relating to section 222 of CAA 2001, insert—
| “sections 228K to 228M | Disposal of plant or machinery subject to lease where income retained”. |
(3) After section 228J (plant or machinery subject to further operating lease) insert—
(1) This section applies for corporation tax purposes if—
(a) on any day (“the relevant day”) a person (“the lessor”) carries on a business of leasing plant or machinery (the “leasing business”),
(b) on the relevant day the lessor sells or otherwise disposes of any relevant plant or machinery subject to a lease to another person,
(c) the lessor remains entitled immediately after the disposal to some or all of the rentals under the lease in respect of the plant or machinery which are payable on or after the relevant day, and
(d) the lessor is required to bring a disposal value of the plant or machinery into account under this Part.
(2) The disposal value to be brought into account is determined as follows.
(3) If the amount or value of the consideration for the disposal exceeds the limit that would otherwise be imposed on the amount of the disposal value by section 62 (general limit) or 239 (limit on disposal value where additional VAT rebate)—
(a) that limit is not to apply, and
(b) the whole of the amount or value of the consideration for the disposal is to be the disposal value to be brought into account.
(4) In any other case, the disposal value to be brought into account is the sum of—
(a) the amount or value of the consideration for the disposal, and
(b) the value of the rentals under the lease in respect of the plant or machinery (see subsections (7) and (8)) which are payable on or after the relevant day and to which the lessor remains entitled immediately after the disposal,
but subject to the limit imposed on the amount of the disposal value by section 62 or 239.
(5) If—
(a) any of the rentals under the lease are receivable by the lessor on or after the relevant day, and
(b) the value of any of those rentals is represented in the amount of the disposal value under subsection (4)(b),
the amount of those rentals that is equal to their value as so represented is left out of account in calculating the income of the lessor’s leasing business for corporation tax purposes.
(6) If, in determining under subsection (5) the amount of any rental to be so left out of account, it is necessary to apportion the amount of the rental, the apportionment is to be made on a just and reasonable basis.
(7) For the purposes of this section, the value of any rentals under the lease in respect of the plant or machinery is taken to be the amount of the net present value of the rentals (see section 228L).
(8) If any land or other asset which is not plant or machinery is subject to the lease, the value of any rentals under the lease in respect of the plant or machinery is taken to be so much of the amount of the net present value of the rentals as, on a just and reasonable basis, relates to the plant or machinery.
(9) This section is supplemented by—
(a) section 228L (which provides rules for determining the net present value of the rentals), and
(b) section 228M (which defines other expressions used in this section).
(1) For the purposes of section 228K, the amount of the net present value of the rentals is calculated as follows—
Step 1
Find the amount (“RI”) of each rental payment—
(a) which is payable at any time during the term of the lease, and
(b) which is payable on or after the relevant day.
Step 2
For each rental payment find the day (“the payment day”) on which it becomes payable.
Step 3
For each rental payment find the number of days in the period (“P”) which—
(a) begins with the relevant day, and
(b) ends with the payment day.
Step 4
Calculate the net present value of each payment (“NPVRI”) by applying the following formula—
where—
T is the temporal discount rate, and
i is the number of days in P divided by 365.
Step 5
Add together each amount of NPVRI determined under step 4.
(2) For the purposes of this section the “term” of a lease has the meaning given in Chapter 6A of this Part.
(3) For the purposes of this section the “temporal discount rate” is 3.5% or such other rate as may be specified by regulations made by the Treasury.
(4) The regulations may make such provision as is mentioned in subsection (3)(b) to (f) of section 178 of FA 1989 (power of Treasury to set rates of interest).
(5) Subsection (5) of that section (power of Commissioners to specify rate by order in certain circumstances) applies in relation to regulations under this section as it applies in relation to regulations under that section.
(1) This section applies for the purposes of section 228K.
(2) “Business of leasing plant or machinery”—
(a) has the same meaning as in Part 2 of Schedule 10 to FA 2006 (sale etc of lessor companies etc) (if the business is carried on otherwise than in partnership), or
(b) has the same meaning as in Part 3 of that Schedule (if the business is carried on in partnership).
(3) “Lease” includes—
(a) an underlease, sublease, tenancy or licence, and
(b) an agreement for any of those things.
(4) “Relevant plant or machinery”, in relation to a business of leasing plant or machinery, means plant or machinery on whose provision expenditure is incurred wholly or partly for the purposes of the business.”.
(4) In Schedule 1 (abbreviations and defined expressions), in Part 1 (abbreviations), insert at the end—
| “FA 2006 | The Finance Act 2006 (c. 25)”. |
(5) The amendments made by this section have effect in relation to any disposal made on or after 5th December 2005.
(6) But any rentals that are receivable by the lessor before 22nd March 2006 are to be left out of account in calculating the income of the lessor’s leasing business for corporation tax purposes.
(1) CAA 2001 is amended as follows.
(2) In section 266 (election where predecessor and successor are connected persons), in subsection (7) (sections 104, 108 and 265 not to apply if election is made), at the end insert “(but see section 267A)”.
(3) In section 267 (effect of election), at the end insert—
“(6) This section is subject to section 267A.”.
(4) After that section insert—
(1) This section applies for corporation tax purposes if—
(a) on any day (“the relevant day”) a person (“the predecessor”) carries on a business of leasing plant or machinery,
(b) on the relevant day another person (“the successor”) succeeds to the business, and
(c) the predecessor and the successor make an election under section 266.
(2) Neither—
(a) section 266(7), nor
(b) the provisions of section 267,
have effect in relation to any plant or machinery which, in determining whether the business is a business of leasing plant or machinery on the relevant day, is qualifying leased plant or machinery.
(3) In this section “business of leasing plant or machinery”—
(a) has the same meaning as in Part 2 of Schedule 10 to FA 2006 (sale etc of lessor companies etc) (if the business is carried on otherwise than in partnership), or
(b) has the same meaning as in Part 3 of that Schedule (if the business is carried on in partnership).”.
(5) The amendments made by this section have effect in relation to any succession occurring on or after 5th December 2005.
Schedule 11 (which makes provision about insurance companies) has effect.
(1) Schedule 15 to ICTA (provisions for determining whether an insurance policy is a “qualifying policy” for the purposes of the Tax Acts) is amended as follows.
(2) In paragraph 18 (variations), in sub-paragraph (3) (paragraph does not apply by reason of certain variations), at the end insert “, or
(d) any variation which alters the method for calculating the benefits secured by the policy.”.
(3) In paragraph 22 (certificates from body issuing policy), in sub-paragraph (3) (sub-paragraph (2) does not apply by reason of certain variations), at the end insert “; or
(c) any variation which alters the method for calculating the benefits secured by the policy.”.
(4) In the case of a variation effected as part of, or in connection with, an insurance business transfer scheme, the amendments made by this section are deemed always to have had effect.
(5) In any other case, the amendments made by this section have effect in relation to variations effected on or after 7th October 2005.
(6) In this section an “insurance business transfer scheme” means—
(a) a scheme falling within section 105 of the Financial Services and Markets Act 2000 (c. 8),
(b) a scheme sanctioned by a court under Part 1 of Schedule 2C to the Insurance Companies Act 1982 (c. 50), or
(c) a scheme sanctioned by a court under section 49 of that Act or under any earlier enactment corresponding to that section,
and for the purposes of this subsection any reference to an enactment is a reference to the enactment as it had effect from time to time.
Schedule 12 (which amends TCGA 1992 in respect of settlors and trustees of settlements and makes other minor and consequential amendments) shall have effect.
Schedule 13 (which amends ICTA and ITTOIA 2005 in respect of settlors and trustees of settlements and makes other minor and consequential amendments) shall have effect.
(1) Section 686 of ICTA (accumulation and discretionary trusts: special rates of tax) is amended as follows.
(2) In subsection (2), after paragraph (b) insert—
“(ba) is not income from service charges held on trust (or, in Scotland, held in trust) by a relevant housing body; and”.
(3) After subsection (6) insert—
“(6ZA) In this section—
“relevant housing body” means—
a local authority,
a registered social landlord,
a Northern Ireland housing association,
a charitable housing association,
a charitable housing trust,
a housing action trust established under Part 3 of the Housing Act 1988,
the Housing Corporation, or
the Northern Ireland Housing Executive; and
“service charge” has the meaning given by section 18(1) of the Landlord and Tenant Act 1985.
(6ZB) In subsection (6ZA)—
“charitable housing association” means a society, body or company which—
satisfies the conditions in section 5(1)(a) and (b) of the Housing Act 1985, and
is registered in a register kept under section 3 of the Charities Act 1993 or section 3 of the Charities and Trustee Investment (Scotland) Act 2005;
“charitable housing trust” means a corporation or body which—
satisfies the condition in section 6(a) or (b) of the Housing Act 1985, and
is registered in a register kept under section 3 of the Charities Act 1993 or section 3 of the Charities and Trustee Investment (Scotland) Act 2005;
“Northern Ireland housing association” means a body which is registered in the register maintained under Article 14 of the Housing (Northern Ireland) Order 1992; and
“registered social landlord” means a body which is registered in a register maintained under section 1 of the Housing Act 1996 or section 57 of the Housing (Scotland) Act 2001.”
(4) This section has effect for the year 2006-07 and subsequent years of assessment.
(1) Schedule 14 contains amendments of the provisions relating to—
the enterprise investment scheme,
venture capital trusts, and
the corporate venturing scheme.
(2) Those amendments have effect as mentioned in that Schedule.
(1) Section 420 of ITEPA 2003 (meaning of securities etc) is amended as follows.
(2) In subsection (1)(f), insert at the beginning “options and”.
(3) In subsection (5)(e), insert at the beginning “securities”.
(4) In subsection (8), in the definition of “securities option”, after “acquire securities” insert “other than a right to acquire securities which is acquired pursuant to a right or opportunity made available under arrangements the main purpose (or one of the main purposes) of which is the avoidance of tax or national insurance contributions”.
(5) This section has effect in relation to options acquired on or after 2nd December 2004; but subsection (4) also has effect in relation to an option acquired before that date where something is done on or after that date as part of the arrangements under which it was made available.
(1) Schedule 23 to FA 2003 (corporation tax relief for employee share acquisition) is amended as follows.
(2) In paragraph 21 (amount of relief in case of restricted shares), after sub-paragraph (4) insert—
“(4A) But if the option is a qualifying option, the amount mentioned in sub-paragraph (4) is increased by (or, if that amount is nil, is taken to be) the amount equal to any difference between—
(a) the amount that would have counted as employment income of the employee under section 476 of the Income Tax (Earnings and Pensions) Act 2003 in respect of the acquisition apart from the EMI code, and
(b) the amount (if any) that in fact counts as such income in accordance with the EMI code.”
(3) In paragraph 22C (amount of relief in case of convertible shares), after sub-paragraph (4) insert—
“(4ZA) But if the option is a qualifying option, the amount mentioned in sub-paragraph (4) is increased by (or, if that amount is nil, is taken to be) the amount equal to any difference between—
(a) the amount that would have counted as employment income of the employee under section 476 of the Income Tax (Earnings and Pensions) Act 2003 (as modified by section 437 of that Act) in respect of the acquisition apart from the EMI code, and
(b) the amount (if any) that in fact counts as such income in accordance with the EMI code.”
(4) In paragraph 30 (minor definitions) insert at the appropriate places—
““the EMI code” has the meaning given by section 527(3) of the Income Tax (Earnings and Pensions) Act 2003;”, and
““qualifying option” has the same meaning as in the EMI code (see section 527(4) of the Income Tax (Earnings and Pensions) Act 2003);”.
(5) In paragraph 31 (index of defined expressions) insert at the appropriate places—
| “the EMI code | paragraph 30”, and |
| “qualifying option | paragraph 30”. |
(6) This section applies in relation to an acquisition of shares made on or after 1st September 2003 (and for this purpose shares are acquired when the recipient acquires a beneficial interest in the shares and not, if different, the time the shares are conveyed or transferred).
(1) ITEPA 2003 is amended as follows.
(2) In section 222 (payments by employer on account of tax where deduction not possible)—
(a) in subsection (1)(c), for “date on which the employer is treated as making the notional payment” substitute “relevant date”,
(b) in subsection (2), for “date mentioned in subsection (1)(c)” substitute “relevant date”, and
(c) after subsection (3) insert—
“(4) In this section “the relevant date” means—
(a) if the employer is treated by virtue of any Act as making the notional payment before the date on which the Act is passed, that date, and
(b) in any other case, the date on which the employer is treated as making the notional payment.”
(3) In section 684(2) (PAYE regulations), in item 1—
(a) for “time of the payment” substitute “relevant time”, and
(b) after paragraph (b) insert—
““The relevant time” is—
(a) if the payment is a notional payment for the purposes of section 710 and the person is treated by virtue of any Act as making it at a time before the date on which the Act is passed, that date, and
(b) in any other case, the time when the payment is made.”
(4) In section 710 (notional payments: accounting for tax)—
(a) in subsection (7), after “means” insert “(subject to subsection (7A))”, and
(b) after that subsection insert—
“(7A) In a case where the notional payment is treated by virtue of any Act as made before the date on which the Act is passed—
(a) the reference in sub-paragraph (i) of paragraph (a) of subsection (7) to the time when the notional payment is made is to the date on which the Act is passed,
(b) the reference in sub-paragraph (ii) of that paragraph to any occasion falling within the same income tax period is to any occasion falling before the end of the income tax period next after that in which that date falls, and
(c) the reference in paragraph (b) of that subsection to the income tax period in which the notional payment was made is to the income tax period next after that in which that date falls.”
(5) The provisions of ITEPA 2003 amended by this section have effect in relation to notional payments treated by virtue of this Act as made before the date on which this Act is passed as if for the references to the date on which the Act is passed in—
(a) section 222(4)(a),
(b) paragraph (a) of the definition of “the relevant time” in section 684(2), and
(c) section 710(7A)(a), (b) and (c),
there were substituted references to such date as the Commissioners for Her Majesty’s Revenue and Customs may by order made by statutory instrument appoint.
(1) In section 46(1) of FA 2005 (alternative finance arrangements: definition) for “or 49.” substitute “, 49 or 49A.”
(2) In section 49 of FA 2005 (profit share return)—
(a) for subsection (2) substitute—
“(2) Amounts paid or credited as mentioned in subsection (1)(c) by a financial institution under arrangements falling within this section are profit share return for the purposes of this Chapter.”, and
(b) in the heading for “profit share return” substitute “deposit”.
(3) After section 49 of FA 2005 insert—
(1) Subject to section 52, arrangements fall within this section if they are arrangements under which—
(a) a person (“the principal”) appoints a financial institution as his agent,
(b) the agent uses money provided by the principal with a view to producing a profit,
(c) the principal is entitled, to a specified extent, to profits resulting from the use of the money,
(d) the agent is entitled to any additional profits resulting from the use of the money (and may also be entitled to a fee to be paid by the principal), and
(e) payments in pursuance of the entitlement specified in paragraph (c) equate, in substance, to the return on an investment of the money at interest.
(2) Amounts paid or credited by a financial institution in accordance with an entitlement of the kind specified in subsection (1)(c) are profit share return for the purposes of this Chapter.
(3) The principal shall not be treated for the purposes of the Tax Acts as entitled to profits to which the agent is entitled in accordance with subsection (1)(d).”
(4) After section 50(2) of FA 2005 (treatment of alternative finance arrangements: companies) insert—
“(2A) Where a company is a party to arrangements falling within section 49A, Chapter 2 of Part 4 of FA 1996 (loan relationships) has effect in relation to the arrangements as if—
(a) the arrangements were a loan relationship to which the company is a party,
(b) the amount provided under the arrangements were—
(i) in relation to a company which is the principal under the arrangements, the amount of a loan made by the company to the agent, and
(ii) in relation to a company which is the agent under the arrangements, the amount of a loan made to it by the principal, and
(c) profit share return payable to or by the company under the arrangements were interest payable under that loan relationship.”
(5) In section 52 of FA 2005 (provision not at arm’s length)—
(a) in subsection (1)(a) for “or section 49,” substitute “, 49 or 49A,”
(b) in subsection (3) for “or section 49.” substitute “, 49 or 49A.”, and
(c) in subsection (5) for “49,” substitute “49 or 49A,”.
(6) In the heading to section 54 of FA 2005 “Section 49” becomes “Sections 49 and 49A”.
(7) In the definition of “profit share return” in section 57 of FA 2005 for “section 49(2)” substitute “sections 49(2) and 49A(2)”.
(8) In paragraph 1(b) of Schedule 2 to FA 2005 after “49” insert “or 49A”.
(9) In section 148 of FA 2003 (meaning of “permanent establishment”) after subsection (5A) insert—
“(5B) Where profit share return is paid, in accordance with arrangements to which section 49A of FA 2005 applies (alternative finance arrangements: profit share agency), to a company that is not resident in the United Kingdom, the company is not regarded as having a permanent establishment in the United Kingdom merely by virtue of anything done for the purposes of the arrangements by the other party to the arrangements or by any other person acting for the company in relation to the arrangements.”
(10) In section 127(1) of FA 1995 (persons not treated as UK representatives) renumber paragraph (cc) as paragraph (ca) and insert after it—
“(cb) where the income consists of profit share return in accordance with arrangements to which section 49A of FA 2005 applies (alternative finance arrangements: profit share agency), the other party to the arrangements or any other person acting for the non-resident in relation to the arrangements;”.
(11) Section 56 of FA 2005 (commencement and transitional) shall have effect in relation to the commencement of this section—
(a) as if references to Chapter 5 of Part 2 of that Act were references to this section,
(b) as if references to 6th April 2005 were references to—
(i) 1st April 2006 in relation to corporation tax, and
(ii) 6th April 2006 in relation to income tax, and
(c) as if references to section 49 were references to section 49A.
(1) In section 46(1) of FA 2005 (alternative finance arrangements: definition) after “47” insert “, 47A,”.
(2) In section 47 of FA 2005 (alternative finance return)—
(a) omit subsection (5),
(b) in subsections (6) and (7) after “is to be taken” insert “for the purposes of this Chapter”, and
(c) in the heading for “alternative finance return” substitute “purchase and re-sale”.
Finance Act 2006