(1) The accounting period of C which is current on the relevant day ends with that day and a new accounting period of C begins with the following day (but subject to subsection (2)).
(2) In a case in which condition A, B or D in section 212C is met and the relevant activity was, at the beginning of the relevant day, carried on by C in partnership with another company or other companies subsection (1) does not apply but—
(a) the period which, for the purposes of Part 17 of CTA 2009, is the accounting period of the partnership current on the relevant day ends with that day, and
(b) there begins with the following day a new accounting period—
(i) of the partnership, or
(ii) where condition D is met and C's relevant percentage share in the relevant trade is nil after the qualifying change, of the company or partnership by which the relevant trade is carried on after the relevant change.
(3) For the purposes of section 212O “the old period” means the accounting period of C or the partnership in which C carries on the relevant activity which ends with the relevant day.
(4) For the purposes of section 212P “the new period” means the accounting period—
(a) of C or that partnership, or
(b) where condition D is met and C's relevant percentage share in the relevant activity is nil after the qualifying change, of the company or partnership by which the relevant activity is carried on after the relevant change,
which begins with the following day.
212O When there is excess of allowances in pool: amount of excess
(1) Section 212P has effect where C or P has an excess of allowances in any single asset pool, any class pool or the main pool at the end of the old period; and a pool in the case of which there is an excess of allowances is referred to in this section and section 212P as a “relevant pool”.
(2) For the purposes of this section C or P has an excess of allowances in a pool if—
PA>BSVP
(3) In this section and section 212Q—
PA, in relation to a pool, is the amount specified in section 212K(2) in relation to the pool, and
BSVP, in relation to a pool, is so much of BSV as, on a just and reasonable apportionment, it is appropriate to attribute to the pool.
(4) For the purposes of section 212P the amount of the excess of allowances in relation to any relevant pool (“the relevant pool in question”) is the difference between PA and BSVP.
(5) But if, in relation to any other pool—
BSVP>PA
what would otherwise be the amount of the excess of allowances in relation to the relevant pool in question for the purposes of section 212P is reduced by so much of the difference between BSVP and PA as is not taken into account under this subsection in relation to another relevant pool or under section 212Q(8).
(1) The unrelieved qualifying expenditure in each relevant pool is to be taken to be reduced at the beginning of the new period by the amount of the excess of allowances in relation to the pool.
(2) The amount of the excess of allowances is to be treated from the beginning of the new period as if it were qualifying expenditure in a new pool of the same description as the relevant pool (and so subject to the same provisions of this Part, other than this Chapter).
(3) Where, following the qualifying change, a person ceases to carry on a qualifying activity (or part of a qualifying activity) and C begins to carry on (whether or not in partnership) that activity (or that part of an activity) as part of its trade or business, for the purposes of claiming any allowance in respect of qualifying expenditure in the new pool the carrying on of that activity (or that part) by C is to be regarded as the carrying on of a separate trade or business.
(4) A loss attributable to an allowance claimed in respect of qualifying expenditure in the new pool may not be set off under section 37, 62 or 66 of CTA 2010 (... loss relief against total profits of same or other accounting period) or section 259 or 260(3) of this Act (special leasing) otherwise than against the profits of a qualifying activity carried on by C, or any company that is a member of P, at the beginning of the relevant day.
(5) And the amount of such a loss which may be so set off by any person is not to exceed the amount of the loss which would have been available for such set off by the person but for the qualifying change.
(6) A loss attributable to an allowance claimed in respect of qualifying expenditure in the new pool may not be set off by way of group relief in accordance with Part 5 of CTA 2010 (surrender of losses by way of group relief) by a company (“the claimant company”) unless it would have been available for such set off but for the qualifying change.
(7) And the amount of such a loss which is available for such set off by the claimant company is not to exceed the amount of the loss which would have been available for such set off by the claimant company but for the qualifying change.
(8) Where any activity not carried on by C, or a company that is a member of P, at the beginning of the relevant day would otherwise be regarded for the purposes of corporation tax as forming part of a qualifying activity carried on by C or the member of P at that time it is not to be so regarded for the purposes of subsection (4).
(9) In a case in which condition C in section 212C is met, the references in subsections (1) and (2) to the beginning of the new period are to the time of the qualifying change (and section 948 of CTA 2010 has effect subject to this section).
(1) This section has effect where C or P has relevant postponed capital allowances.
(2) C or P has relevant postponed capital allowances if amount 2 in section 212K(3) is an amount other than nil.
(3) Where, following the qualifying change, a person ceases to carry on a qualifying activity (or part of a qualifying activity) and C begins to carry on (whether or not in partnership) that activity (or that part of an activity) as part of its trade or business, for the purposes of claiming any allowance in respect of qualifying expenditure such as is mentioned in section 212K(3) the carrying on of that activity (or that part) by C is to be regarded as the carrying on of a separate trade or business.
(4) A loss attributable to an allowance claimed in respect of qualifying expenditure such as is mentioned in section 212K(3) may not be set off under section 37, 45A, 62 or 66 of CTA 2010 or section 259 or 260(3) of this Act otherwise than against the profits of a qualifying activity carried on by C, or any company that is a member of P, at the beginning of the relevant day.
(5) And the amount of such a loss which may be so set off by any person is not to exceed the amount of the loss which would have been available for such set off by the person but for the qualifying change.
(6) A loss attributable to an allowance claimed in respect of qualifying expenditure such as is mentioned in section 212K(3) may not be set off by a company (“the claimant company”) by way of group relief in accordance with Part 5 of CTA 2010 or group relief for carried forward losses in accordance with Part 5A of CTA 2010 ... unless it would have been available for such set off but for the qualifying change.
(7) And the amount of such a loss which is available for such set off by the claimant company is not to exceed the amount of the loss which would have been available for such set off by the claimant company but for the qualifying change.
(8) If, in relation to any pool—
BSVP>PA
what would otherwise be the amount of qualifying expenditure such as is mentioned in section 212K(3) is to be treated for the purposes of this section as reduced by so much of the difference between BSVP and PA in relation to the pool as is not taken into account under section 212O(5) in relation to a relevant pool.
(9) Where any activity not carried on by C, or a company that is a member of P, at the beginning of the relevant day would otherwise be regarded for the purposes of corporation tax as forming part of a qualifying activity carried on by C or the member of P at that time it is not to be so regarded for the purposes of subsection (4).
212R Apportionment of proceeds of disposal of relevant plant and machinery
Any amount required to be brought into account in connection with a disposal event in respect of any relevant plant and machinery is to be apportioned between the new pool and the relevant pool concerned on a just and reasonable basis.
(1) This section applies if any plant and machinery is transferred on the relevant day and (apart from subsection (4)(c) of section 212K) the transfer would have the effect of reducing RTWDV (as determined in accordance with that section).
(2) No person other than C or P is entitled to claim an allowance in respect of the plant or machinery after the transfer.
212T Cap on first-year allowances: zero-emission goods vehicles
(1) A section 45DA allowance is not available in respect of expenditure (“the current expenditure”) incurred by a person (“the investor”)—
(a) if section 45DA allowances have previously been made in respect of undertaking expenditure of 85 million euros, or
(b) (where paragraph (a) does not apply) if, and to the extent that, the aggregate of—
(i) the undertaking expenditure in respect of which section 45DA allowances have previously been made, and
(ii) the current expenditure,
exceeds 85 million euros.
(2) “Undertaking expenditure” means—
(a) expenditure incurred by the investor,
(b) if the investor is a partnership, expenditure incurred (at any time) by a person who is a partner enterprise forming part of the investor at the time the current expenditure is incurred, and
(c) if the investor and one or more other persons together form, or have at any time formed, an undertaking, expenditure which is—
(i) incurred by that undertaking, or
(ii) incurred by any of those other persons at a relevant time.
(3) Expenditure is incurred by a person at a “relevant time” if it is incurred—
(a) at a time when the investor and the person are part of the same undertaking, or
(b) at a time before the investor and the person became part of the same undertaking (or, if they became part of the same undertaking on more than one occasion, before the last time).
(4) For the purposes of subsection (1), expenditure incurred in a currency other than the euro is to be converted into its equivalent in euros using the spot rate of exchange for the day on which the expenditure is incurred.
(5) The Treasury may by regulations increase the amount specified in subsection (1)(a) and (b).
(6) In this section—
“section 45DA allowance” means a first-year allowance in respect of expenditure that is first-year qualifying expenditure under section 45DA;
“undertaking” means—
an autonomous enterprise, or
an enterprise (not within paragraph (a)) and its partner enterprises (if any) and its linked enterprises (if any),
and “enterprise”, “autonomous enterprise”, “partner enterprise” and “linked enterprise” have the meaning given by Annex 1 to the Commission Regulation (EU) No 651/2014 (General block exemption Regulation) as it had effect in the United Kingdom immediately before IP completion day.
212U Cap on first-year allowances: expenditure on plant and machinery for use in designated assisted areas
(1) A section 45K allowance is not available in respect of expenditure (“the current expenditure”) incurred by a person (“the investor”) in respect of a particular designated assisted area—
(a) if section 45K allowances have previously been made to any person in respect of P&M expenditure of 125 million euros incurred in respect of that area and on the same single investment project as the current expenditure, or
(b) (where paragraph (a) does not apply) if, and to the extent that, the aggregate of—
(i) the P&M expenditure incurred by any person in respect of that area, and on the same single investment project as the current expenditure, in respect of which section 45K allowances have previously been made, and
(ii) the current expenditure,
exceeds 125 million euros.
(2) For the purposes of subsection (1), any reference to P&M expenditure incurred in respect of a designated assisted area is a reference to expenditure incurred on the provision of plant or machinery for use primarily in that area.
(3) For the purposes of subsection (1), expenditure incurred in a currency other than the euro is to be converted into its equivalent in euros using the spot rate of exchange for the day on which the expenditure is incurred.
(4) The Treasury may by regulations increase the amount specified in subsection (1)(a) and (b).
(5) In this section—
“designated assisted area” has the meaning given by section 45K;
“section 45K allowance” means a first-year allowance in respect of expenditure that is first-year qualifying expenditure under section 45K;
“single investment project” has the same meaning as in Commission Regulation (EU) No 651/2014 (General block exemption Regulation) as it had effect in the United Kingdom immediately before IP completion day.
213 Relevant transactions: sale, hire-purchase (etc.) and assignment
(1) For the purposes of this Chapter, a person (“B”) and another person (“S”) enter into a relevant transaction if—
(a) S sells plant or machinery to B,
(b) B enters into a contract with S providing that B shall or may become the owner of plant or machinery on the performance of the contract, or
(c) S assigns to B the benefit of a contract providing that S shall or may become the owner of plant or machinery on the performance of the contract.
(2) For the purposes of this Chapter, references to B’s expenditure under a relevant transaction are references—
(a) in the case of a sale within subsection (1)(a), to B’s capital expenditure on the provision of the plant or machinery by purchase,
(b) in the case of a contract within subsection (1)(b), to B’s capital expenditure under the contract so far as it relates to the plant or machinery, or
(c) in the case of an assignment within subsection (1)(c), to B’s capital expenditure under the contract so far as it relates to the plant or machinery or is by way of consideration for the assignment.
(3) If—
(a) B is treated under section 14 (use for qualifying activity of plant or machinery which is a gift) as having incurred capital expenditure on the provision of plant or machinery, and
(b) the donor of the plant or machinery was S,
B is to be treated for the purposes of this Chapter as having incurred capital expenditure on the provision of the plant or machinery by purchasing it from S.
(4) For the purposes of this Chapter, references to the disposal value of the plant or machinery under a relevant transaction are references to the disposal value that is to be brought into account by S as a result of the sale, contract or assignment in question.
Allowances under this Part are restricted under sections 217 and 218 (or, as the case may be, 218ZA(3)) if—
(a) B enters into a relevant transaction with S, and
(b) B and S are connected with each other.
(1) Allowances under this Part are restricted, and balancing charges are imposed or increased, under the applicable sections if B and S enter into a relevant transaction that either—
(a) has an avoidance purpose, or
(b) is part of, or occurs as a result of, a scheme or arrangement that has an avoidance purpose.
(2) Subsection (1)(b) may be satisfied—
(a) whether the scheme or arrangement was made before or after the relevant transaction was entered into, and
(b) whether or not the scheme or arrangement is legally enforceable.
(3) A transaction, scheme or arrangement has an “avoidance purpose” if the main purpose, or one of the main purposes, of a party in entering into the transaction, scheme or arrangement is to enable a person to obtain a tax advantage under this Part that would not otherwise be obtained.
(4) The reference in subsection (3) to obtaining a tax advantage that would not otherwise be obtained includes—
(a) obtaining an allowance that is in any way more favourable to a person than the one that would otherwise be obtained, and
(b) avoiding liability for the whole or part of a balancing charge to which a person would otherwise be liable.
(4A) If the tax advantage relates to the disposal value of the plant or machinery under the relevant transaction (whether by obtaining a more favourable allowance or by avoiding the whole or part of a balancing charge) then—
(a) the applicable section is section 218ZB, and
(b) the tax advantage is to be disregarded for the purposes of subsection (6) and (8)(b).
(5) If the tax advantage is of a kind described in subsection (7), “the applicable sections” are sections 217 and 218ZA(5).
(6) Otherwise, “the applicable sections” are sections 217 and 218ZA(1) or, as the case may be, 218ZA(3).
(7) The kinds of tax advantage are—
(a) that an allowance to which B is entitled for a chargeable period is calculated using a percentage rate that is higher than the one that would otherwise be used, or
(b) that B is entitled to an allowance in respect of an amount of capital expenditure sooner than B would otherwise be entitled to it.
(8) If a transaction, scheme or arrangement involves—
(a) a tax advantage of a kind described in subsection (7), and
(b) a tax advantage not of such a kind,
subsections (5) and (6) have effect separately in relation to each tax advantage.
(1) Allowances under this Part are restricted under sections 217 and 218 (or, as the case may be, 218ZA(3)) if—
(a) B enters into a relevant transaction with S, and
(b) the plant or machinery—
(i) continues to be used for the purposes of a qualifying activity carried on by S or by a person (other than B) who is connected with S, or
(ii) is used after the date of the transaction for the purposes of a qualifying activity carried on by S or by a person (other than B) who is connected with S, without having been used since that date for the purposes of any other qualifying activity except that of leasing the plant or machinery.
(2) In this section—
“the date of the transaction” means the date of the sale, the making of the contract or the assignment referred to in section 213(1)(a) to (c), and
“qualifying activity” includes any activity listed in section 15(1) even if any profits or gains from it are not chargeable to tax.
217 No annual investment allowance or first-year allowance for B’s expenditure
(1) If this section applies as a result of section 214, 215 or 216, no annual investment allowance or first-year allowance is to be made in respect of B’s expenditure under the relevant transaction.
(2) Any annual investment allowance or first-year allowance which is prohibited by subsection (1), but which has already been made, is to be withdrawn.
(3) This section does not apply if plant or machinery is the subject of a sale and finance leaseback (as defined in section 221).
218 Restriction on B’s qualifying expenditure: section 214 or 216
(1) If this section applies as a result of section 214 or 216, the amount, if any, by which B’s expenditure under the relevant transaction exceeds D is to be left out of account in determining B’s available qualifying expenditure.
D is defined in subsections (2), (2A) and (3).
(2) If S is required to bring a disposal value into account under this Part because of the relevant transaction, D is that disposal value.
(2A) D is nil if—
(a) S is not required to bring a disposal value into account under this Part because of the relevant transaction, and
(b) at any time before that transaction S or a linked person became owner of the plant or machinery without incurring either capital expenditure or qualifying revenue expenditure on its provision.
(3) Otherwise, D is whichever of the following is the smallest—
(a) the market value of the plant or machinery;
(b) if S incurred capital expenditure on the provision of the plant or machinery, the amount of that expenditure;
(c) if a person connected with S incurred capital expenditure on the provision of the plant or machinery, the amount of that expenditure.
(3A) “Linked person”, in relation to plant or machinery, means a person—
(a) who owned the plant or machinery at any time before the relevant transaction, and
(b) who was connected with S at any time between—
(i) the time when the person became owner of the plant or machinery, and
(ii) the time of the relevant transaction.
(3B) Expenditure on the provision of plant or machinery is “qualifying revenue expenditure” if it is expenditure of a revenue nature—
(a) that is at least equal to the amount of expenditure that would reasonably be expected to have been incurred on the provision of the plant or machinery in a transaction between persons dealing with each other at arm's length in the open market, or
(b) that is incurred by the manufacturer of the plant or machinery and is at least equal to the amount that it would have been reasonable to expect to have been the normal cost of manufacturing the plant or machinery.
(4) This section does not apply if plant or machinery is the subject of a sale and finance leaseback (as defined in section 221), but see section 225.
(5) This section is subject to section 218ZA(3).
218ZA Restrictions on writing-down allowances: section 215
(1) If this subsection applies as a result of section 215, all or part of B's expenditure under the relevant transaction is to be left out of account in determining B's available qualifying expenditure.
(2) The amount of expenditure to be left out of account is—
(a) such amount as would or would in effect cancel out the tax advantage mentioned in section 215 (whether that advantage is obtained by B or another person and whether it relates to the relevant transaction or something else), or
(b) if the amount found under paragraph (a) exceeds the whole of B's expenditure under the relevant transaction, the whole of that expenditure.
(3) But if subsection (1) applies as a result of section 215 and—
(a) section 218 also applies as a result of section 214 or 216, or
(b) section 228 also applies by virtue of an election under section 70I(11) or 227,
the amount of expenditure to be left out of account is the greater of X and Y.
(4) For the purposes of subsection (3)—
“X” is the amount found under subsection (2), and
“Y” is the amount by which B's expenditure under the relevant transaction exceeds D (as defined in section 218 or, as the case may be, section 228).
(5) If this subsection applies as a result of section 215—
(a) the allowance mentioned in subsection (7)(a) of that section is to be calculated using the rate that would be used without the tax advantage, or (as the case may be)
(b) the entitlement mentioned in subsection (7)(b) of that section is to be available as and when it would be available without the tax advantage.
(6) Subsection (5) applies whether or not section 218 also applies as a result of section 214 or 216, or section 228 also applies by virtue of an election under section 70I(11) or 227.
(1) If—
(a) this section applies as a result of section 215,
(b) a payment is payable to any person under the transaction, scheme or arrangement mentioned in that section,
(c) some or all of the payment would not (apart from this section) be taken into account in determining the disposal value of the plant or machinery under the relevant transaction, and
(d) as a result of the matters mentioned in paragraphs (b) and (c) S would otherwise obtain a tax advantage as mentioned in section 215(3) and (4),
the disposal value of the plant or machinery under the relevant transaction is to be adjusted in a just and reasonable manner so as to include an amount representing so much of the payment as would or would in effect cancel out the tax advantage.
(2) In subsection (1) “payment” includes the provision of any benefit, the assumption of any liability and any other transfer of money or money's worth, and “payable” is to be construed accordingly.
218A Further restriction on annual investment allowance
(1) This section applies where an arrangement is entered into wholly or mainly for a disqualifying purpose.
(2) Arrangements are entered into for a disqualifying purpose if their main purpose, or one of their main purposes, is to enable a person to obtain an annual investment allowance to which the person would not otherwise be entitled.
(3) The annual investment allowance mentioned in subsection (2) is not to be made.
(4) Any annual investment allowance which is prohibited by subsection (3), but which has already been made, is to be withdrawn.
(1) In this Chapter “finance lease” means any arrangements—
(a) which provide for plant or machinery to be leased or otherwise made available by a person (“the lessor”) to another person (“the lessee”), and
(b) which, under generally accepted accounting practice—
(i) fall (or would fall) to be treated, in the accounts of the lessor or a person connected with the lessor, as a finance lease or a loan, or
(ii) are comprised in arrangements which fall (or would fall) to be so treated.
...
(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) In this section “accounts”, in relation to a company, includes any accounts which—
(a) relate to two or more companies of which that company is one, and
(b) are drawn up in accordance with generally accepted accounting practice.
220 Allocation of expenditure to a chargeable period
(A1) Subsection (1) applies to a company for a chargeable period if—
(a) at the end of the CTA period of account which is the basis period for the chargeable period, the company is a member of a group, and
(b) the last day of that CTA period of account is not also the last day of a CTA period of account of the principal company of the group.
(1) Subject to subsection (2), if the company incurs at any time in the chargeable period capital expenditure on the provision of plant or machinery for leasing under a finance lease or under a qualifying operating lease (see subsection (4)) —
(a) the part of the expenditure which is proportional to the part of that chargeable period falling before that time is not to be taken into account in determining that company's available qualifying expenditure for that period, but
(b) this does not prevent that part of the expenditure being taken into account in determining that company's available qualifying expenditure for any subsequent chargeable period.
(2) Subsection (1)(a) does not apply to a chargeable period if a disposal event occurs in that period in respect of the plant or machinery.
(3) The following provisions have effect for the interpretation of this section.
(4) A “qualifying operating lease” is a plant or machinery lease that meets the following conditions—
(a) it is not a finance lease,
(b) it is a funding lease,
(c) its term is longer than 4 years but not longer than 7 years.
(5) A CTA period of account is the basis period for a chargeable period if the chargeable period coincides with, or falls within, the CTA period of account.
(6) A “CTA period of account” is a period of account as defined in section 1119 of CTA 2010.
(7) The provisions of section 170(3) to (6) of TCGA 1992 apply to determine for the purposes of this section—
(a) whether a company is member of a group, and
(b) which company is the principal company of the group.
(8) But, in applying those provisions for the purposes of this section, a company (“the subsidiary company”) that does not have ordinary share capital is to be treated as being a qualifying 75% subsidiary of another company (“the parent company”) if the parent company—
(a) has control of the subsidiary company..., and
(b) is beneficially entitled to the appropriate proportion of profits and assets.
(9) The parent company is beneficially entitled to the appropriate proportion of profits and assets if (and only if) it—
(a) is beneficially entitled to at least 75% of any profits available 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.
(10) The provisions of Chapter 6 of Part 5 of CTA 2010 (equity holders and profits or assets etc) also apply for the purposes of this section.
(11) In this section, the following expressions have the same meaning as in Chapter 6A of Part 2 (interpretation of provisions about long funding leases)—
“funding lease”,
“plant or machinery lease”,
“term”, in relation to a lease.
(1) For the purposes of this section and section 225, plant or machinery is the subject of a sale and finance leaseback if—
(a) B enters into a relevant transaction with S,
(b) after the date of the transaction, the plant or machinery—
(i) continues to be used for the purposes of an activity carried on by S or by a person (other than B) who is connected with S,
(ii) is used for the purposes of a qualifying activity carried on by S or by a person (other than B) who is connected with S, without having been used since that date for the purposes of any other qualifying activity except that of leasing the plant or machinery, or
(iii) is used for the purposes of a non-qualifying activity carried on by S or by a person (other than B) who is connected with S, without having been used since that date for the purposes of a qualifying activity except that of leasing the plant or machinery, and
(c) it is directly or indirectly 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.
(2) In this section—
“the date of the transaction” means the date of the sale, the making of the contract or the assignment referred to in section 213(1)(a) to (c),
“non-qualifying activity” means any activity which is not a qualifying activity, and
“qualifying activity” includes any activity listed in section 15(1) even if any profits or gains from it are not chargeable to tax.
225 B’s qualifying expenditure if lessor not bearing non-compliance risk
(1) This section applies if plant or machinery is the subject of a sale and finance leaseback, and the finance lease, or any transaction or series of transactions of which it forms a part, makes provision which—
(a) removes from the lessor the whole, or the greater part, of any risk, which would otherwise fall directly or indirectly on the lessor, of any person sustaining a loss if payments under the lease are not made in accordance with its terms, and
(b) does so otherwise than by means of guarantees from persons connected with the lessee.
(2) In such a case the following are not qualifying expenditure for the purposes of this Part —
(a) B’s expenditure under the relevant transaction;
(b) if the lessor is a different person from B, the expenditure incurred by the lessor on the provision of the plant or machinery.
(3) For the purposes of determining whether this section applies, the lessor and the persons connected with the lessor are treated as the same person.
227 Sale and leaseback: election for special treatment
(1) Section 228 applies if—
(a) B enters into a relevant transaction with S,
(b) the plant or machinery—
(i) is within section 216(1)(b) (sale and leaseback), ...
(ii) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(c) the conditions set out in subsection (2) are met, and
(d) B and S elect that section 228 should apply.
(2) The conditions are—
(a) that S incurred capital expenditure on the provision of the plant or machinery,
(b) that the plant or machinery was unused and not second-hand at or after the time when it was acquired by S,
(c) that the plant or machinery was acquired by S otherwise than as a result of a transaction to which section 217 or 218 applies,
(d) that the relevant transaction is effected not more than 4 months after the first occasion on which the plant or machinery is brought into use by any person for any purpose, and
(e) that S has not—
(i) made a claim for an allowance under this Act in respect of expenditure incurred on the provision of the plant or machinery,
(ii) made a tax return in which such expenditure is taken into account in determining his available qualifying expenditure for the purposes of this Part, or
(iii) given notice of any such amendment of a tax return as provides for such expenditure to be so taken into account.
(3) In subsection (2)(b) and (c), the references to the plant or machinery being acquired by S are, in a case where the relevant transaction between S and B falls within section 213(1)(c) (assignment), references to the making of the contract the benefit of which S assigns to B.
(4) An election under this section—
(a) must be made by notice to an officer of Revenue and Customs no later than 2 years after the date of the transaction, and
(b) is irrevocable.
(5) Nothing in—
(a) section 42 of, or Schedule 1A to, TMA 1970 (claims and elections for income tax purposes), or
(b) paragraphs 54 to 60 of Schedule 18 to FA 1998 (claims and elections for corporation tax purposes),
applies to such an election.
(6) In subsection (4) “the date of the transaction” means the date of the sale, the making of the contract or the assignment referred to in section 213(1)(a) to (c).
228 Effect of election: relaxation of restriction on B’s qualifying expenditure, etc.
(1) The effect of an election under section 227 in relation to B is that subsections (2) and (3) apply instead of section 218 ... (restriction on B’s qualifying expenditure).
(2) The amount, if any, by which B’s expenditure under the relevant transaction exceeds D is to be left out of account in determining B’s available qualifying expenditure.
(3) D is whichever of the following is the smaller—
(a) if S incurred capital expenditure on the provision of the plant or machinery, the amount of that expenditure;
(b) if a person connected with S incurred capital expenditure on the provision of the plant or machinery, the amount of that expenditure.
(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) The effect of an election under section 227 in relation to S is—
(a) that no allowance is to be made to S under this Act in respect of the capital expenditure on the provision of the plant or machinery, and
(b) that the whole of that expenditure must be left out of account in determining the amount for any period of Ss’ available qualifying expenditure for the purposes of this Part.
(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.
(1) For the purpose of income tax or corporation tax, in calculating S's income or profits for a period of account the amount deducted in respect of amounts payable under the leaseback may not exceed the permitted maximum.
(2) The permitted maximum is the amount of the finance charges shown in the accounts.
(3) In relation to a period of account during which the leaseback terminates, the permitted maximum shall also include an amount calculated in accordance with subsection (4).
(4) The calculation is—
CurrentBookValue×OriginalConsiderationOriginalBookValue
where—
“Current Book Value” means the net book value of the leased plant or machinery immediately before the termination,
“Original Consideration” means the consideration payable to S for granting B rights over the plant or machinery, and
“Original Book Value” means the net book value of the leased plant or machinery at the beginning of the leaseback.
(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.
228C S's income or profits: termination of leaseback
(1) Subsection (2) applies where the leaseback terminates.
(2) For the purpose of the calculation of income tax or corporation tax, the income or profits of S from the relevant qualifying activity for the period in which the termination occurs shall be increased by an amount calculated in accordance with subsection (3).
(3) The calculation is—
Original Consideration×CurrentBookValueOriginalBookValue
where—
“Original Consideration” means the consideration payable to S for granting B rights over the plant or machinery,
“Current Book Value” means the net book value of the leased plant or machinery immediately before the termination, and
“Original Book Value” means the net book value of the leased plant or machinery at the beginning of the leaseback.
(4) In this section “relevant qualifying activity” means the qualifying activity for the purposes of which the leased plant or machinery was used immediately before the termination.
(5) Section 228B has no effect on the treatment for the purposes of income tax or corporation tax of amounts received by way of refund on the termination of a leaseback of amounts payable under it.
(6) In subsection (5), “amounts received by way of refund” includes any amount that would be so received in respect of S's interest under the leaseback if any amounts due to B (or, where appropriate, an assignee of B) under the leaseback were disregarded.
228G Leaseback not accounted for as finance lease in S's accounts
(1) Sections 228B and 228C are subject to this section in their application in relation to a leaseback that is not accounted for as a finance lease in the accounts of S.
(2) Subsection (3) applies where the leaseback is accounted for as a finance lease in the accounts of a person connected with S; and in that subsection “ relevant calculation ” means the calculation of—
(a) the permitted maximum for the purposes of section 228B, or
(b) the amount by which the income or profits of S are to be increased in accordance with section 228C.
(3) Where an amount that falls to be used for the purposes of a relevant calculation—
(a) cannot be ascertained by reference to S's accounts because the leaseback is not accounted for as a finance lease in those accounts, but
(b) can be ascertained by reference to the connected person’s accounts for one or more periods,
that amount as ascertained by reference to the connected person’s accounts shall be used for the purposes of the relevant calculation.
(4) Subsections (5) and (6) apply in a case where the leaseback is not accounted for as a finance lease in the accounts of a person connected with S.
(5) Sections 228B and 228C do not apply in relation to the leaseback.
(6) If the term of the leaseback begins on or after 18 May 2004 then, for the purposes of income tax or corporation tax, the income or profits of S from the relevant qualifying activity for the period of account during which the term of the leaseback begins shall be increased by the consideration payable to S for granting B rights over the plant or machinery.
(7) For the purposes of this section the leaseback is accounted for as a finance lease in a person’s accounts if—
(a) the leaseback falls, under generally accepted accounting practice, to be treated in that person’s accounts as a finance lease or loan, or
(b) in a case where the leaseback is comprised in other arrangements, those arrangements fall, under generally accepted accounting practice, to be so treated.
(1) In sections 228A to 228G—
“consideration” does not include rentals;
...
the “ net book value ”of leased plant or machinery means the book value of the plant or machinery having regard to any relevant entry in S's accounts, but—
also having regard to depreciation up to the time in question, and
disregarding any revaluation gains or losses and any impairments;
...
“S” does not include an assignee of S;
“ termination ” in relation to a leaseback includes ...—
the assignment of S's interest,
the making of any arrangements (apart from an assignment of S's interest) under which a person other than S becomes liable to make some or all payments under the leaseback, and
a variation as a result of which the leaseback ceases to be a finance lease.
(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 890 of CTA 2010 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.
(2) In a case where accounts drawn up are not correct accounts, or no accounts are drawn up—
(a) the provisions of sections 228A to 228G apply as if correct accounts had been drawn up, and
(b) amounts referred to in any of those sections as shown in accounts are those that would have been shown in correct accounts.
(3) In a case where accounts are drawn up in reliance upon amounts derived from an earlier period of account for which correct accounts were not drawn up, or no accounts were drawn up, amounts referred to in sections 228A to 228G as shown in the accounts for the later period are those that would have been shown if correct accounts had been drawn up for the earlier period.
(4) In subsections (2) and (3) “ correct accounts ” means accounts drawn up in accordance with generally accepted accounting practice.
228J Plant or machinery subject to further operating lease
(1) This section applies where—
(a) plant or machinery is the subject of—
(i) a sale and finance leaseback, or
(ii) a lease and finance leaseback, and
(b) some or all of the plant or machinery becomes, while the subject of the leaseback, also the subject of a lease in relation to which the following conditions are met—
(i) the term of the lease begins on or after 18 May 2004;
(ii) S, or a person connected with S, is the lessee under the lease;
(iii) the lease is not accounted for as a finance lease in the accounts of the lessee.
(2) For the purpose of income tax or corporation tax, in calculating the lessee’s income or profits for a period of account the amount deducted in respect of amounts payable under the operating lease shall not exceed the relevant amount.
(3) Subsections (4) and (5) apply in relation to the calculation of the lessor’s income or profits for a period of account for the purpose of income tax or corporation tax.
(4) Where—
(a) an amount receivable in respect of the lessor’s interest under the operating lease falls to be taken into account in that calculation, and
(b) that amount is reduced by an amount due to the lessee under the operating lease,
that reduction shall be disregarded when taking the amount receivable into account.
(5) The amounts receivable in respect of the lessor’s interest under the operating lease that fall to be taken into account in that calculation may be disregarded to the extent that they exceed the relevant amount (whether or not subsection (4) applies).
(6) Where only some of the plant or machinery is the subject of the operating lease, subsections (2) to (5) shall apply subject to such apportionments as may be just and reasonable.
(7) For the purposes of this section a lease is accounted for as a finance lease in a person’s accounts if—
(a) the lease—
(i) falls, under generally accepted accounting practice, to be treated in that person's accounts as a finance lease or loan, or
(ii) if that person is a lessee under a right-of-use lease, would fall to be treated in that person's accounts as a finance lease were that person required under generally accepted accounting practice to determine whether the lease falls to be so treated,
(b) in a case where the lease is comprised in other arrangements, those arrangements —
(i) fall, under generally accepted accounting practice, to be treated as a finance lease or loan, or
(ii) if that person is a lessee under a right-of-use lease, would fall to be treated in that person's accounts as a finance lease were that person required under generally accepted accounting practice to determine whether the arrangements fall to be so treated.
(8) In this section—
“ lease and finance leaseback ” has the meaning given in section 228A;
“ lessee ” means the lessee under the operating lease;
“ lessor ” means the lessor under the operating lease;
“ operating lease ” means the lease referred to in subsection (1)(b);
“ relevant amount ” means an amount equal to the permitted maximum under section 228B as it applies in relation to the leaseback.
228K Disposal of plant or machinery subject to lease where income retained
(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).
228L Determining the net present value of the rentals for purposes of s.228K
(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—
which is payable at any time during the term of the lease, and
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—
begins with the relevant day, and
ends with the payment day.
Step 4
Calculate the net present value of each payment (“NPVRI”) by applying the following formula—
RI(1+T)i
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 Chapter 3 of Part 9 of CTA 2010 (if the business is carried on otherwise than in partnership), or
(b) has the same meaning as in Chapter 4 of that Part (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.
(1) This section applies where capital expenditure is incurred on the provision of plant or machinery (“the asset”) and at the time the expenditure is incurred—
(a) the asset is leased or arrangements exist under which it is to be leased, and
(b) arrangements have been entered into in relation to payments under the lease that have the effect of reducing the value of the asset to the lessor (“V”).
(2) For the purposes of capital allowances the lessor's qualifying expenditure on the asset is restricted to V.
(3) The value of the asset to the lessor is given by—
V=VI+VR
where—
VI is the present value of the lessor's income from the asset, and
VR is the present value of the residual value of the asset reduced by the amount of any rental rebate.
(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 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 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
(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 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 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 person (“the lessee”).