Office of Public Sector Information
SCHEDULE 20 continued
(4) For the purposes of condition B “the relevant period” means the period which begins with the inception of the lease and ends with the end of the term of the lease.
(5) Condition C is that the difference would be attributable (wholly or partly) to the application of any of sections 502B to 502G in relation to the company by reference to the plant or machinery under the lease.
(6) The reference in this section to an amount being recognised in determining a company’s profit or loss for a period is to an amount being recognised for accounting purposes—
(a) in the company’s profit and loss account or income statement,
(b) in the company’s statement of recognised gains and losses or statement of changes in equity, or
(c) in any other statement of items brought into account in calculating the company’s profits and losses for that period.
(7) For the purposes of this section it does not matter whether the parties to any transaction which forms part of the arrangement differ from the parties to any of the other transactions.
(8) For the purposes of this section the cases in which two or more transactions are to be taken as forming part of an arrangement include any case in which it would be reasonable to assume that one or more of them—
(a) would not have been entered into independently of the other or others, or
(b) if entered into independently of the other or others, would not have taken the same form or been on the same terms.
(9) If—
(a) at any time any of sections 502B to 502G has applied for determining the amounts to be taken into account in calculating the profits or losses of the company for the purposes of corporation tax, and
(b) conditions A to C are met at any subsequent time,
those amounts, and any other amounts which (as a result of this section) are to be so taken into account, are subject to such adjustments as are just and reasonable.
(10) All such assessments and adjustments of assessments are to be made as are necessary to give effect to subsection (9).”
(5) The amendment made by sub-paragraph (2) has effect where—
(a) expenditure is incurred on or after 9 October 2007, or
(b) a company becomes entitled to a deduction in calculating its profits or losses for the purposes of corporation tax as a result of any plant or machinery forming part of its trading stock on or after that date.
(6) The amendment made by sub-paragraph (3) has effect where the lease mentioned in section 502GB(1)(b) of ICTA is entered into on or after 13 December 2007.
(7) The amendment made by sub-paragraph (4) has effect in relation to arrangements entered into on or after 9 October 2007.
10 (1) Chapter 10A of Part 2 of ITTOIA 2005 (corresponding income tax rules) is amended as follows.
(2) After section 148F insert—
(1) Sections 148A to 148F do not apply in the case of a person carrying on a trade who is or has been the lessor of any plant or machinery under a long funding lease if the following condition is met.
(2) The condition is that any part of the expenditure incurred by the person on the acquisition of the plant or machinery for leasing under the lease—
(a) is (apart from those sections) allowable as a deduction in calculating the profits or losses of the trade, and
(b) is so allowable as a result of the plant or machinery forming part of the trading stock of the trade.
(3) For the purposes of this section the cases in which expenditure incurred by a person carrying on a trade on the acquisition of any plant or machinery for leasing under a lease is allowable as such a deduction include any case where—
(a) the person becomes entitled to the deduction at any time after the expenditure is incurred, and
(b) the deduction arises as a result of the plant or machinery forming part of the trading stock of the trade at that time.
(4) If—
(a) at any time any of sections 148A to 148F has applied for determining the amounts to be taken into account in calculating the profits or losses of the trade, and
(b) the condition in subsection (2) is met at any subsequent time,
those amounts, and any other amounts which (as a result of this section) are to be so taken into account, are subject to such adjustments as are just and reasonable.
(5) All such assessments and adjustments of assessments are to be made as are necessary to give effect to subsection (4).”
(3) After section 148FA insert—
(1) This section applies if—
(a) a person is the lessee of any plant or machinery under a lease (“lease A”) that is not a long funding lease,
(b) the person enters into a lease (“lease B”) of any of that plant or machinery (as lessor), and
(c) lease B is a long funding lease.
(2) Sections 148A to 148F do not apply in relation to lease B.
(3) If by virtue of section 70H of CAA 2001 (tax return by lessee treating lease as long funding lease) lease A becomes a long funding lease (and does not cease to be such a lease), treat this section as never having applied in relation to lease B.”
(4) After section 148FB insert—
(1) Sections 148A to 148F do not apply in the case of a person carrying on a trade who is or has been the lessor of any plant or machinery under a long funding lease if conditions A to C are met.
(2) Condition A is that the long funding lease forms part of any arrangement entered into by the person which includes one or more other transactions (whether the arrangement is entered into before or after or at the inception of the lease).
(3) Condition B is that the main purpose, or one of the main purposes, of the arrangement is to secure that, over the relevant period, there would be a substantial difference between—
(a) the total amount of the amounts under the arrangement which are, in accordance with generally accepted accounting practice, recognised in determining the profit or loss of the trade for any period or taken into account in calculating the amounts which are so recognised, and
(b) the total amount of the amounts under the arrangement which are taken into account in calculating the profits or losses of the trade.
(4) For the purposes of condition B “the relevant period” means the period which begins with the inception of the lease and ends with the end of the term of the lease.
(5) Condition C is that the difference would be attributable (wholly or partly) to the application of any of sections 148A to 148F in relation to the person by reference to the plant or machinery under the lease.
(6) The reference in this section to an amount being recognised in determining the profit or loss of a trade for a period is to an amount being recognised for accounting purposes—
(a) in the profit and loss account or income statement relating to the trade,
(b) in the statement of recognised gains and losses or statement of changes in equity relating to the trade, or
(c) in any other statement of items brought into account in calculating the profits and losses of the trade for that period.
(7) For the purposes of this section it does not matter whether the parties to any transaction which forms part of the arrangement differ from the parties to any of the other transactions.
(8) For the purposes of this section the cases in which two or more transactions are to be taken as forming part of an arrangement include any case in which it would be reasonable to assume that one or more of them—
(a) would not have been entered into independently of the other or others, or
(b) if entered into independently of the other or others, would not have taken the same form or been on the same terms.
(9) If—
(a) at any time any of sections 148A to 148F has applied for determining the amounts to be taken into account in calculating the profits or losses of the trade, and
(b) conditions A to C are met at any subsequent time,
those amounts, and any other amounts which (as a result of this section) are to be so taken into account, are subject to such adjustments as are just and reasonable.
(10) All such assessments and adjustments of assessments are to be made as are necessary to give effect to subsection (9).”
(5) The amendment made by sub-paragraph (2) has effect where—
(a) expenditure is incurred on or after 9 October 2007, or
(b) a person carrying on a trade becomes entitled to a deduction in calculating the profits or losses of the trade as a result of any plant or machinery forming part of the trading stock of the trade on or after that date.
(6) The amendment made by sub-paragraph (3) has effect where the lease mentioned in section 148FB(1)(b) of ITTOIA 2005 is entered into on or after 13 December 2007.
(7) The amendment made by sub-paragraph (4) has effect in relation to arrangements entered into on or after 9 October 2007.
11 (1) If, at the beginning of 13 December 2007 (“the relevant date”)—
(a) a company or a person carrying on a trade is the lessee of any plant or machinery under a lease that is not a long funding lease (“lease A”), and
(b) the company or person is the lessor of any of that plant or machinery under a lease that is a long funding finance lease (“lease B”),
sub-paragraphs (2) to (10) apply in respect of lease B.
(2) Section 502B of ICTA or section 148A of ITTOIA 2005 (rental earnings) does not apply in relation to a period of account within sub-paragraph (3).
(3) A period of account is within this sub-paragraph if—
(a) it begins on or after the relevant date, and
(b) no rentals which were due under lease B before the relevant date are (wholly or in part) in respect of any part of the period of account.
(4) For the purpose of calculating the profits of the lessor under lease B for a period of account ending on or after the relevant date that is not within sub-paragraph (3), treat the lessor as receiving for that period of account income attributable to lease B of an amount equal to the relevant amount.
(5) The “relevant amount” is an amount equal to so much of the rentals that—
(a) become due on or after the relevant date, and
(b) are wholly or partly in respect of the period of account,
as would not reasonably be regarded as reflected in the rental earnings for that period of account.
“Rental earnings” here has the same meaning as in section 502B of ICTA or section 148A of ITTOIA 2005.
(6) If any rental is paid for a period (“the rental period”) which begins before the relevant date or is not wholly within the period of account, for the purposes of sub-paragraph (5) treat the amount of that rent as equal to the amount apportioned (on a time basis) in respect of so much of the rental period as falls on or after the relevant date and within the period of account.
(7) The income treated as received by virtue of sub-paragraph (4) is in addition to any amount brought into account under section 502B(2) of ICTA or section 148A(2) of ITTOIA 2005.
(8) Section 502C of ICTA or section 148B of ITTOIA 2005 (exceptional items) does not apply in relation to any profit or loss arising on or after the relevant date.
(9) If section 502D of ICTA or section 148C of ITTOIA 2005 (lessor making termination payment) applies in respect of the termination of lease B on or after the relevant date, a deduction is allowed (in calculating the profits of the lessor) in respect of the sum paid to the lessee.
(10) The amount of that deduction is (if it would otherwise exceed that amount) limited to the total amount brought into account in respect of the lease by virtue of sub-paragraph (2) or (4).
(11) If lease A becomes a long funding lease by virtue of section 70H of CAA 2001 (and does not cease to be such a lease), treat this paragraph as never having applied in relation to lease B.
(12) Chapter 6A of Part 2 of CAA 2001 (interpretation of provisions about long funding leases) applies in relation to this paragraph.
12 (1) Chapter 17 of Part 2 of CAA 2001 (plant and machinery allowances: anti-avoidance) is amended as follows.
(2) For section 228A substitute—
(1) Sections 228B and 228C apply where plant or machinery is the subject of a lease and finance leaseback.
(2) Plant or machinery is the subject of a lease and finance leaseback if—
(a) a person (“S”) leases the plant or machinery to another (“B”),
(b) after the date of that transaction, the use of the plant or machinery falls within sub-paragraph (i), (ii) or (iii) of section 221(1)(b), and
(c) it is directly as a consequence of having been leased under a finance lease that the plant or machinery is available to be so used after that date.
(3) For the purposes of subsection (2), S leases the plant or machinery to B only if—
(a) S grants B rights over the plant or machinery,
(b) consideration is given for that grant, and
(c) S is not required to bring all of that consideration into account under this Part.”
(3) In section 228B (lessee’s income or profits: deductions)—
(a) in subsection (1), for “the lessee's” substitute “S's”,
(b) in subsection (2), for the words from “the total” to the end substitute “the amount of the finance charges shown in the accounts.”,
(c) in subsection (4), in the definition of “Original Consideration”, for “entering into the relevant transaction” substitute “granting B rights over the plant or machinery”, and
(d) the heading accordingly becomes “S’s income or profits: deductions”.
(4) In section 228C (lessee’s income or profits: termination of leaseback)—
(a) in subsection (2), for “the lessee” substitute “S”,
(b) in subsection (3), in the formula, for “Net” substitute “Original” and for the definition of “Net Consideration” substitute—
““Original Consideration” means the consideration payable to S for granting B rights over the plant or machinery,”,
(c) in subsection (6), for “the lessee's” substitute “S's” and for “the lessor” substitute “B (or, where appropriate, an assignee of B)”, and
(d) the heading accordingly becomes “S’s income or profits: termination of leaseback”.
(5) Omit—
(a) section 228D (lessor’s income or profits),
(b) section 228E (lessor’s income or profits: termination of leaseback), and
(c) section 228F (lease and finance leaseback).
(6) In section 228G (leaseback not accounted for as finance lease in accounts of lessee)—
(a) in subsection (1), for “the lessee” substitute “S”,
(b) in subsection (2), for “the lessee” (in both places) substitute “S”,
(c) in subsection (3), for “the lessee's” substitute “S's”,
(d) in subsection (4), for “the lessee” substitute “S”,
(e) in subsection (6), for “the lessee” substitute “S” and for the words from “increased by—” to the end substitute “increased by the consideration payable to S for granting B rights over the plant or machinery.”, and
(f) the heading accordingly becomes “Leaseback not accounted for as finance lease in S’s accounts”.
(7) Section 228H (sections 228A to 228G: supplementary) is amended as follows.
(8) In subsection (1)—
(a) insert (as the first defined term)—
““consideration” does not include rentals;”,
(b) omit the definition of “lessee”,
(c) in the definition of “net book value”, for “the lessee's” substitute “S's”,
(d) omit the definition of “restricted disposal value”,
(e) before the definition of “termination” insert—
““S” does not include an assignee of S;”, and
(f) in the definition of “termination”, omit “(except in section 228E)”, for “the lessee's” (in both places) substitute “S's” and for “the lessee” substitute “S”.
(9) After that subsection insert—
“(1A) For the purposes of sections 228A to 228G, references to consideration given (or payable to S) for the grant to B of rights over the plant or machinery do not include—
(a) rentals payable under that grant, or
(b) any relevant capital payment (within the meaning of section 785B of ICTA or section 809ZA of ITA 2007) to which either of those sections applies.
(1B) In relation to a case where some but not all of the consideration mentioned in subsection (1A) falls within paragraph (b) of that subsection, sections 228B to 228G or section 228J have effect subject to such modifications as are just and reasonable.”
(10) In section 228J(8) (plant or machinery subject to further operating lease), in the definition of “lease and finance leaseback”, for “section 228F” substitute “section 228A”.
(11) In section 774E(5)(b) of ICTA (structured finance arrangements: exceptions), omit “with the modifications contained in section 228F of that Act”.
(12) The amendments made by this paragraph have effect in relation to transactions referred to in section 228A(2)(a) of CAA 2001 (as substituted by this paragraph) entered into on or after 9 October 2007.
13 (1) Section 228B of CAA 2001 (S’s income or profits: deductions) is amended as follows.
(2) After subsection (4) insert—
“(5) If the use mentioned in section 228A(2)(b) includes use by a person (other than B) who is connected with S, this section applies in relation to that person as it applies in relation to S.”
(3) Accordingly, in the heading, after “profits” insert “etc”.
(4) The amendments made by this paragraph have effect in relation to transactions referred to in section 228A(2)(a) of CAA 2001 entered into on or after 12 March 2008.
Finance Act 2008