(1) In this Part “restitution interest” means profits in relation to which Conditions A to C are met.
(2) Condition A is that the profits are interest paid or payable by the Commissioners for Her Majesty’s Revenue and Customs in respect of a company’s right (or possible right) to restitution with regard to either of the following matters (or alleged matters)—
(a) the payment of an amount to the Commissioners under a mistake of law relating to a taxation matter, or
(b) the unlawful collection by the Commissioners of an amount in respect of taxation.
(3) Condition B is that—
(a) a court has made a final determination that the Commissioners are liable to pay the interest, or
(b) the Commissioners have in final settlement of a claim in respect of the right (or possible right) mentioned in subsection (2) entered into an agreement under which a person is entitled to be paid, or is to retain, the interest.
(4) Condition C is that the interest determined to be due, or agreed upon, as mentioned in subsection (3) is not limited to simple interest at a rate equivalent to or lower than a statutory rate (see section 357YU).
(5) Subsection (4) does not prevent so much of an amount of interest determined to be due, or agreed upon, as represents or is calculated by reference to simple interest at a rate equivalent to or lower than a statutory rate from falling within the definition of “restitution interest”.
(6) For the purposes of subsection (2) it does not matter whether the interest is paid or payable—
(a) pursuant to a judgment or order of a court,
(b) as an interim payment in court proceedings,
(c) under an agreement to settle a claim, or
(d) in any other circumstances.
(7) For the purposes of this section—
(a) “interest” includes an amount equivalent to interest, and
(b) an amount paid or payable by the Commissioners as mentioned in subsection (2) is “equivalent to interest” so far as it is an amount determined by reference to the time value of money.
(8) For the purposes of this section a determination made by a court is “final” if the determination cannot be varied on appeal (whether because of the absence of any right of appeal, the expiry of a time limit for making an appeal without an appeal having been brought, the refusal of permission to appeal, the abandonment of an appeal or otherwise).
(9) Any power to grant permission to appeal out of time is to be disregarded for the purposes of subsection (8).
357YD Further provision about amounts included, or not included, in “restitution interest”
(1) Interest paid to a company is not restitution interest for the purposes of this Part if—
(a) Condition B was not met in relation to the interest until after the interest was paid, and
(b) the amount paid was limited to simple interest at a rate equivalent to or lower than a statutory rate
(2) Subsection (1) does not prevent so much of a relevant amount of interest determined to be due, agreed upon or otherwise paid as represents or is calculated by reference to simple interest at a rate equivalent to or lower than a statutory rate from falling within the definition of “restitution interest”.
(3) In subsection (2) “relevant amount of interest” means an amount of interest the whole of which was paid before Condition B was met in relation to it.
(4) Section 357YC(7) applies in relation to this section as in relation to section 357YC.
357YDA Life insurance companies: amounts representing policyholder income
(1) This section applies if—
(a) an amount of interest paid or payable by the Commissioners for Her Majesty’s Revenue and Customs would (but for this section) be restitution interest arising to a company, and
(b) were this Part not to have effect, that amount would be taken into account under section 73 of FA 2012 (the I-E basis) as income chargeable for an accounting period of the company that is referable to its basic life assurance and general annuity business.
(2) So much (if any) of the amount as represents policyholder income is to be treated for the purposes of this Part as if it were not restitution interest.
(3) To determine how much (if any) of the amount mentioned in subsection (1) (amount “A”) represents policyholder income, take the following steps—
Step 1
(a) Take so much of amount A as consists of non-ACT interest (“the non-ACT amount”).
(b) Determine how much (in total) of the non-ACT amount is to be assigned to with-profits funds (one or more) of the company.
Call this total amount “P”.
In this step “non-ACT interest” means interest which is not interest in respect of advance corporation tax.
Step 2
Determine how much of P is to be assigned to each of the with-profits funds concerned.
This is the “assignable amount” in the case of each fund.
Step 3
In the case of each fund mentioned in step 2, determine in what proportions profits of the fund concerned are to be divided between policyholders and shareholders under the distribution policy for the fund.
Step 4
Express the policyholders’ proportion (as determined under step 3) as a percentage of the whole.
This is the “policyholder percentage” for the fund.
Step 5
Multiply each assignable amount by the policyholder percentage for the fund in question.
The result is the “policyholder amount” in the case of each fund.
Step 6
Amount A “represents policyholder income” so far as it does not exceed the total policyholder amounts found under step 5.
(4) For the purposes of subsection (3) “the distribution policy for the fund” means the basis on which the company has decided profits of the fund are to be divided between policyholders and shareholders.
(5) The distribution policy for a with-profits fund is to be determined as at the time when the interest arises, and with particular reference to—
(a) any relevant information in the company’s articles of association, and
(b) any relevant information or document published by the company in connection with obligations under the FCA Handbook.
(6) In this section—
“the FCA Handbook” means the Handbook made by the Financial Conduct Authority under the Financial Services and Markets Act 2000, and
“interest” has the same meaning as in section 357YC.
357YE Period in which amounts are to be brought into account
(1) The amounts to be brought into account as restitution interest for any period for the purposes of this Part are those that are recognised in determining the company's profit or loss for the period in accordance with generally accepted accounting practice.
(2) If Condition A in section 357YC is met, in relation to any amount, after the end of the period for which the amount is to be brought into account as restitution interest in accordance with subsection (1), any necessary adjustments are to be made; and any time limits for the making of adjustments are to be disregarded for this purpose.
(1) If a company—
(a) draws up accounts which are not GAAP-compliant accounts, or
(b) does not draw up accounts at all,
this Part applies as if GAAP-compliant accounts had been drawn up.
(2) Accordingly, references in this Part to amounts recognised for accounting purposes are references to amounts that would have been recognised if GAAP-compliant accounts had been drawn up for the period of account in question and any relevant earlier period.
(3) For this purpose a period of account is relevant to a later period if the accounts for the later period rely to any extent on amounts derived from the earlier period.
(4) In this section “GAAP-compliant accounts” means accounts drawn up in accordance with generally accepted accounting practice.
357YG Restitution interest: appeals made out of time
(1) This section applies where—
(a) an amount of interest (“the interest”) arises to a company as restitution interest for the purposes of this Part,
(b) Condition B in section 357YC is met in relation to the interest as a result of the making by a court of a final determination as mentioned in subsection (3)(a) of that section,
(c) on a late appeal (or a further appeal subsequent to such an appeal) a court reverses that determination, or varies it so as to negative it, and
(d) the determination reversing or varying the determination by virtue of which Condition B was met is itself a final determination.
(2) This Part has effect as if the interest had never been restitution interest.
(3) If—
(a) the Commissioners for Her Majesty's Revenue and Customs have under section 357YO(2) deducted a sum representing corporation tax from the interest, or
(b) a sum has been paid as corporation tax in respect of the interest under section 357YQ,
that sum is treated for all purposes as if it had never been paid to, or deducted or held by, the Commissioners as or in respect of corporation tax.
(4) Any adjustments are to be made that are necessary in accordance with this section; and any time limits applying to the making of adjustments are to be ignored.
(5) In this section—
“final determination” has the same meaning as in section 357YC;
“late appeal” means an appeal which is made by reason of a court giving leave to appeal out of time.
(1) Any ... tax advantages that would (in the absence of this section) arise from relevant avoidance arrangements are to be counteracted by the making of such adjustments as are just and reasonable in relation to amounts to be brought into account for the purposes of this Part.
(2) Any adjustments required to be made under this section (whether or not by an officer of Revenue and Customs) may be made by way of an assessment, the modification of an assessment, amendment or otherwise.
(3) For the meaning of “relevant avoidance arrangements” and “tax advantage” see section 357YI.
(1) This section applies for the interpretation of section 357YH (and this section).
(2) “Arrangements” include any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable).
(3) Arrangements are “relevant avoidance arrangements” if their main purpose, or one of their main purposes, is to enable a company to obtain a tax advantage in relation to the application of the charge to tax at the restitution payments rate.
(4) But arrangements are not “relevant avoidance arrangements” if the obtaining of any tax advantages that would (in the absence of section 357YH) arise from them can reasonably be regarded as consistent with wholly commercial arrangements.
(5) “Tax advantage” includes—
(a) a repayment of tax or increased repayment of tax,
(b) the avoidance or reduction of a charge to tax or an assessment to tax,
(c) the avoidance of a possible assessment to tax,
(d) deferral of a payment of tax or advancement of a repayment of tax, or
(e) the avoidance of an obligation to deduct or account for tax.
(6) In subsection (5)(b) and (c) the references to avoidance or reduction include an avoidance or reduction effected by receipts accruing in such a way that the recipient does not bear tax on them as restitution interest under this Part.
357YJ Examples of results that may indicate exclusion not applicable
(1) Each of the following is an example of something which might indicate that arrangements whose main purpose, or one of whose main purposes, is to enable a company to obtain a ... tax advantage are not excluded by section 357YI(4) from being “relevant avoidance arrangements” for the purposes of section 357YH—
(a) existing the elimination or reduction for the purposes of this Part of amounts chargeable as restitution interest arising to the company in connection with a particular claim, if for economic purposes other or greater profits arise to the company in connection with the claim;
(b) preventing or delaying the recognition as an item of profit or loss of an amount that would apart from the arrangements be recognised in the company's accounts as an item of profit or loss, or be so recognised earlier;
(c) ensuring that a receipt is treated for accounting purposes in a way in which it would not have been treated in the absence of some other transaction forming part of the arrangements.
(2) In this section “arrangements” and “tax advantage” have the meaning given by section 357YI.
(1) Under subsection (3) of section 4 (amounts to which rates of corporation tax applied) the amounts to be added together to find a company's “total profits” do not include amounts of restitution interest on which corporation tax is chargeable under this Part.
(2) No reliefs or set-offs may be given against so much of the corporation tax to which a company is liable for an accounting period as is equal to the amount of corporation tax chargeable on the company for the period at the restitution payments rate.
(3) In subsection (2) “reliefs and set-offs” includes, but is not restricted to, those listed in the second step of paragraph 8(1) of Schedule 18 to FA 1998.
(4) Amounts of income tax or corporation tax, or any other amounts, which may be set off against a company's overall liability to income tax and corporation tax for an accounting period may not be set off against so much of the corporation tax to which the company is liable for the period as is equal to the amount of corporation tax chargeable at the restitution payments rate.
357YM Assignment of rights to person not chargeable to corporation tax
(1) Subsection (4) applies if—
(a) a chargeable company (“the transferor”) transfers to a person who either—
(i) is not a company, or
(ii) is a non-qualifying company,
a right in respect of a claim, or possible claim, for restitution,
(b) the transfer is made on or after 21 October 2015, and
(c) conditions A and B are met.
(2) Condition A is that the main purpose, or one of the main purposes, of the transfer is to secure a tax advantage for any person in relation to the application of the charge to tax on restitution interest under this Part.
(3) Condition B is that as a result of that transfer (or that transfer together with further transfers of the rights) restitution interest arises to a person who either—
(a) is not a company, or
(b) is a non-qualifying company.
(4) Any restitution interest which arises as mentioned in Condition B is treated for corporation tax purposes as restitution interest arising to the transferor.
(5) For the purposes of this section a company is a “chargeable company” if it meets the first and second conditions.
The first condition is that the company is UK resident or carries on a trade in the United Kingdom through a permanent establishment in the United Kingdom.
The second condition is that the company is not a charitable company and would not be exempt from corporation tax on restitution interest (were such interest to arise to it).
(5A) For the purposes of this section a company is a “non-qualifying company” if—
(a) it is non-UK resident, or
(b) it is a charitable company, or would be exempt from corporation tax on restitution interest (were such interest to arise to it).
(6) In this section “tax advantage” has the meaning given by section 357YI.
357YN Migration of company with claim to restitution interest
(1) This section applies where—
(a) restitution interest arises to a non-UK resident company,
(b) the rights in respect of which the company is entitled to the restitution interest had (to any extent) accrued when the company ceased to be UK resident, and
(c) the company's main purpose, or one of its main purposes, in changing its residence was to secure a tax advantage for any person in relation to the application of the charge to tax on restitution interest under this Part.
(2) The company is treated as a UK resident company for the purposes of the application of this Part in relation to so much of that restitution interest as is attributable to relevant accrued rights.
(3) “Relevant accrued rights” means rights which had accrued to the company when it ceased to be UK resident.
(4) The company is to be treated for the purposes of sections 185 and 187 of TCGA 1992 as not having disposed of its assets on ceasing to be resident in the United Kingdom, so far as its assets at that time consisted of rights to receive restitution interest.
(5) Any adjustments that are necessary as a result of subsection (4) are to be made; and any time limits for the making of adjustments are to be ignored for this purpose.
357YNA Transfer of rights: restitution interest arising after a winding up or dissolution
(1) Subsection (2) applies if an amount of restitution interest which is paid or payable to a person would be treated under section 357YM(4) as arising to a company (“the transferor”) but for the fact that the company no longer exists at the time when the restitution interest arises.
(2) If an officer of Revenue and Customs gives a related company a notice under this subsection in respect of the restitution interest, the restitution interest is treated for corporation tax purposes as restitution interest arising to that company.
(3) Subsection (4) applies if an amount of restitution interest which is paid or payable to a person would apart from this section be treated by virtue of section 357YM(4) as arising to a company which has been wound up (“the transferor”).
(4) If an officer of Revenue and Customs gives a related company a notice under this subsection in respect of the restitution interest, the restitution interest is treated for corporation tax purposes as restitution interest arising not to the transferor but to that company.
(5) A notice under subsection (2) or (4) must specify—
(a) the amount of the restitution interest, and
(b) the date on which it is paid or payable.
(6) A notice under subsection (2) or (4) in respect of an amount of restitution interest must be given by the later of—
(a) the date on which the amount is paid or payable, or
(b) the time when any notice under section 357YQ(2) in respect of the amount is given to the related company.
(1) A company is a “related company” for the purposes of section 357YNA(2) if at any time in the relevant period (see subsection (5)) that company was a member of the same group as the transferor (see section 357YNA(1)).
(2) A company is a “related company” for the purposes of section 357YNA(4) if at any time in the relevant period (see subsection (6)) that company was a member of the same group as the transferor (see section 357YNA(3)).
(3) For the purposes of this section two companies are members of the same group if—
(a) one is a 51% subsidiary of the other, or
(b) both are 51% subsidiaries of a third company.
(4) In subsection (1) “the relevant period” means the period which—
(a) begins—
(i) if the transferor was not wound up before it was dissolved, at the beginning of the 12 months ending with the date on which the company is dissolved,
(ii) if the transferor was wound up before it was dissolved, at the beginning of the 12 months before the commencement of the winding up, and
(b) ends when the amount mentioned in section 357YNA(1) is paid or becomes payable (whichever is later).
(5) In subsection (2) the “relevant period” means the period which—
(a) begins at the beginning of the 12 months before the commencement of the winding up of the transferor, and
(b) ends when the amount mentioned in section 357YNA(3) is paid or becomes payable (whichever is later).
357YO Duty to deduct tax from payments of restitution interest
(1) Subsection (2) applies if the Commissioners for Her Majesty's Revenue and Customs pay an amount of interest in relation to which Conditions 1 and 2 are met and—
(a) the amount is (when the payment is made) restitution interest on which a company is chargeable to corporation tax under this Part, or
(b) a company would be chargeable to corporation tax under this Part on the interest paid if it were (at that time) restitution interest.
(2) The Commissioners must, on making the payment—
(a) deduct from it a sum representing corporation tax on the amount at the restitution payments rate, and
(b) give the company a written notice stating the amount of the gross payment and the amount deducted from it.
(3) Condition 1 is that the Commissioners are liable to pay, or have agreed or determined to pay, the interest in respect of a company's claim for restitution with regard to—
(a) the payment of an amount to the Commissioners under a mistake of law relating to a taxation matter, or
(b) the unlawful collection by the Commissioners of an amount in respect of taxation.
(4) Condition 2 is that the interest is not limited to simple interest at a rate equivalent to or lower than a statutory rate.
In determining whether or not this condition is met, all amounts which the Commissioners are liable to pay, or have agreed or determined to pay in respect of the claim are to be considered together.
(5) For the purposes of Condition 1 it does not matter whether the Commissioners are liable to pay, or (as the case may be) have agreed or determined to pay, the interest—
(a) pursuant to a judgment or order of a court,
(b) as an interim payment in court proceedings,
(c) under an agreement to settle a claim, or
(d) in any other circumstances.
(6) For the purposes of subsection (2) the restitution payments rate is to be applied to the gross payment, that is to the payment before deduction of a sum representing corporation tax in accordance with this section.
(7) For the purposes of this section—
(a) “interest” includes an amount equivalent to interest, and
(b) an amount which the Commissioners pay as mentioned in subsection (1) is “equivalent to interest” so far as it is an amount determined by reference to the time value of money.
357YP Treatment of amounts deducted under section 357YO
(1) An amount deducted from an interest payment in accordance with section 357YO(2)
(a) is treated for all purposes as paid by the company mentioned in section 357YO(1) on account of the company's liability, or potential liability, to corporation tax charged on the interest payment, as restitution interest, under this Part, and
(b) is accordingly to be treated for corporation tax purposes as going towards the discharging of the company’s liability to pay, for the accounting period concerned, tax charged under this Part (as calculated under paragraph 2 of the fifth step of paragraph 8(1) of Schedule 18 to FA 1998).
(2) Subsections (3) and (4) apply if—
(a) the Commissioners for Her Majesty’s Revenue and Customs have, on paying an amount which is not (when the payment is made) restitution interest, made a deduction under section 357YO(2) from the gross payment (see section 357YO(6)), and
(b) a company becomes liable to repay the net amount to the Commissioners, or it otherwise becomes clear that the gross amount cannot, or will not, become restitution interest.
(3) If the condition in subsection (2)(b) is met in circumstances where the company is not liable to repay the net amount to the Commissioners, the Commissioners must—
(a) repay to the company the amount treated under subsection (1) as paid by the company, and
(b) make any other necessary adjustments;
and any time limits applying to the making of adjustments are to be ignored.
(4) If the condition in subsection (2)(b) is met by virtue of a company becoming liable to repay to the Commissioners the amount paid as mentioned in subsection (2)(a)—
(a) this Part has effect as if the company were liable to repay the gross payment to the Commissioners, and
(b) the amount deducted by the Commissioners as mentioned in subsection (2)(a) is to be treated for the purposes of this Part as money repaid by the company in partial satisfaction of its liability to repay the gross amount.
(5) Subsections (3) and (4) have effect with the appropriate modifications if the condition in subsection (2)(b) is met in relation to part but not the whole of the gross amount mentioned in subsection (2)(a).
(6) In this section “the net amount”, in relation to a payment made under deduction of tax in accordance with section 357YO(2), means the amount paid after deduction of tax.
357YQ Assessment of tax chargeable on restitution interest
(1) An officer of Revenue and Customs may make an assessment of the amounts in which, in the officer's opinion, a company is chargeable to corporation tax under this Part for a period specified in the assessment.
(1A) An assessment under this section may be made at any time before the later of—
(a) the end of the period of 2 years after the end of the accounting period in which Condition B in section 357YC is met, and
(b) the end of any period within which the assessment may otherwise be made under any other provision of the Taxes Acts (within the meaning of section 118(1) of TMA 1970).
(2) Notice of an assessment under this section must be served on the company, stating the date on which the assessment is issued.
(3) An assessment may include an assessment of the amount of restitution income arising to the company in the period and any other matters relevant to the calculation of the amounts in which the company is chargeable to corporation tax under this Part for the period.
(4) Notice of an assessment under this section may be accompanied by notice of any determination by an officer of Revenue and Customs relating to the dates on which amounts of tax become due and payable under this section or to amounts treated under section 357YP as paid on account of corporation tax.
(5) The company must pay the amount assessed as payable for the accounting period by the end of the period of 30 days beginning with the date on which the company is given notice of the assessment.
(1) If an amount deducted under section 357YO(2) in respect of an amount of interest exceeds the amount which should have been deducted, the Commissioners for Her Majesty’s Revenue and Customs are liable to pay interest on the excess from the material date until the date on which the excess is repaid.
(2) The “material date” is the date on which tax was deducted from the interest.
(3) Interest under subsection (1) is to be paid at the rate applicable under section 178 of FA 1989.
(1) An appeal may be brought against the deduction by the Commissioners for Her Majesty's Revenue and Customs from a payment of a sum representing corporation tax in compliance, or purported compliance, with section 357YO(2).
(2) Notice of appeal must be given to Her Majesty’s Revenue and Customs —
(a) in writing,
(b) within 30 days after the giving of the notice under section 357YO(2).
357YT Amounts taxed at restitution payments rate to be outside instalment payments regime
For the purposes of regulations under section 59E of TMA 1970 (further provision as to when corporation tax due and payable), tax charged at the restitution payments rate is to be disregarded in determining the amount of corporation tax payable by a company for an accounting period.
(1) In this Part “court” includes a tribunal.
(2) In this Part “statutory rate” (in relation to interest) means a rate which is equal to a rate specified—
(a) for purposes relating to taxation, and
(b) in, or in a provision made under, an Act.
357YV Relationship of Part with other corporation tax provisions
(1) So far as restitution interest is charged to corporation tax under this Part it is not chargeable to corporation tax under any other provision (including Part 2 of FA 2012: but see also section 357YDA).
(2) This Part has effect regardless of section 464(1) of CTA 2009 (priority of loan relationship provisions).
(1) The Treasury may by regulations amend this Part (apart from this section).
(2) Regulations under this section—
(a) may not widen the description of the type of payments that are chargeable to corporation tax under this Part;
(b) may not remove or prejudice any right of appeal;
(c) may not increase the rate at which tax is charged on restitution interest under this Part;
(d) may not enable any provision of this Part to have effect in relation to the subject matter of any claim which has been finally determined before 21 October 2015.
(3) Subject to subsection (2), regulations under this section may have retrospective effect.
(4) For the purposes of this section a claim is “finally determined” if a court has disposed of the claim by a final determination or the claimant and the Commissioners for Her Majesty's Revenue and Customs have entered into an agreement in final settlement of the claim.
(5) Section 357YC(8) (which defines when a determination made by a court is final) has effect for the purposes of this section as for the purposes of section 357YC.
(6) Regulations under this section may include incidental, supplementary or transitional provision.
(7) A statutory instrument containing regulations under this section must be laid before the House of Commons.
(8) The regulations cease to have effect at the end of the period of 28 days beginning with the day on which they are made unless, during that period, the regulations are approved by a resolution of the House of Commons.
(9) In reckoning the 28-day period, no account is to be taken of any time during which—
(a) Parliament is dissolved or prorogued, or
(b) the House of Commons is adjourned for more than 4 days.
(10) Regulations ceasing to have effect by virtue of subsection (8) does not affect—
(a) anything previously done under the regulations, or
(b) the making of new regulations.
(1) This Part makes provision about the taxation of leasing transactions involving companies.
(2) Chapter 2 makes provision about the treatment for corporation tax purposes of companies which are lessors or lessees under long funding leases of plant or machinery.
(3) The sales of lessors Chapters make provision about the taxation of a company which is within the charge to corporation tax in respect of a business of leasing plant or machinery (within the meaning of Chapter 3 or 4)—
(a) on the sale of, or certain other changes in interests in, the company, and
(b) in certain circumstances where the company's interest in the business changes.
(4) In this Part “the sales of lessors Chapters” means Chapters 3 to 6.
(5) In the sales of lessors Chapters—
(a) Chapter 3 deals with the case of a qualifying change of ownership in relation to the company where it carries on the business otherwise than in partnership,
(b) Chapter 4 deals with—
(i) the case of a qualifying change in the company's interest in the business where it carries on the business in partnership with other persons, and
(ii) the case of a qualifying change of ownership in relation to any such company,
(c) Chapter 5 contains anti-avoidance provisions, and
(d) Chapter 6 provides for the general interpretation of those Chapters.
(6) For the meaning of “qualifying change of ownership” in the sales of lessors Chapters, see sections 392 to 398.
(7) For the meaning of “qualifying change in a company's interest in a business” in Chapter 4, see section 415.
(1) This Chapter makes provision about the calculation for corporation tax purposes of the profits of companies which are—
(a) lessors of plant or machinery under long funding finance leases (see sections 360 to 362),
(b) lessors of plant or machinery under long funding operating leases (see sections 363 to 369),
(c) lessees of plant or machinery under long funding finance leases (see sections 377 and 378), or
(d) lessees of plant or machinery under long funding operating leases (see sections 379 and 380).
(2) Sections 370 to 376 make provision about cases where sections 360 to 369 are not to apply.
(3) For the meaning of expressions used in this section and in this Chapter generally, see section 381 and, in particular—
(a) subsection (1) of that section (which provides for the application of Chapter 6A of Part 2 of CAA 2001 (interpretation of provisions about long funding leases) to this Chapter), and
(b) subsections (2) and (3) of that section (which specify the provisions of that Chapter in which some expressions used in this Chapter are defined).
360 Lessor under long funding finance lease: rental earnings
(1) This section applies for any period of account of a company in which it is the lessor of any plant or machinery under a long funding finance lease.
(2) The amount to be brought into account as the lessor's income from the lease for the period is the amount of the rental earnings in respect of the lease for the period.
(3) The amount of those rental earnings is the amount which, in accordance with generally accepted accounting practice, falls (or would fall) to be treated as the gross return on investment for that period in respect of the lease.
(4) If the lease is one which, in accordance with such practice, falls (or would fall) to be treated as a loan for the period of account, so much of the rentals under the lease as falls (or would fall) to be treated as interest is treated for the purposes of this section as rental earnings.
361 Lessor under long funding finance lease: exceptional items
(1) This section applies if—
(a) a company is or has been the lessor under a long funding finance lease, and
(b) an exceptional profit or loss arises to the company in connection with the lease.
(2) A profit or loss is exceptional for the purposes of subsection (1) if—
(a) in accordance with generally accepted accounting practice it falls (or would fall) to be recognised for accounting purposes in a period of account, but
(b) apart from this section, it would not be brought into account in calculating the profits of the company for corporation tax purposes.
(3) Such a profit is treated for corporation tax purposes as income of the company attributable to the lease.
(4) Such a loss is treated for corporation tax purposes as a revenue expense incurred by the company in connection with the lease.
(5) It does not matter for the purposes of this section whether the profit or loss is of an income or capital nature.
(6) The reference in subsection (2) to an amount falling to be recognised for accounting purposes in a period of account is a reference to an amount falling to be recognised for accounting purposes in—
(a) the company's profit and loss account, income statement or statement of comprehensive income for that period,
(b) the company's statement of total recognised gains and losses, statement of recognised income and expense, statement of changes in equity or statement of income and retained earnings for that period, or
(c) any other statement of items taken into account in calculating the company's profits or losses for that period.
362 Lessor under long funding finance lease making termination payment
(1) This section applies if—
(a) a company is or has been the lessor under a long funding finance lease,
(b) the lease terminates, and
(c) a sum calculated by reference to the termination value is paid to the lessee.
(2) No deduction in respect of the sum is allowed in calculating the profits of the company for corporation tax purposes.
(3) This section does not prevent a deduction in respect of a sum so far as it is brought into account in determining the company's rental earnings.
(4) For the meaning of “termination value”, see section 381(3)(m).
363 Lessor under long funding operating lease: periodic deduction
(1) This section applies if a company is the lessor of any plant or machinery under a long funding operating lease for the whole or part of a period of account.
(2) A deduction is allowed in calculating the profits of the company for the period of account for corporation tax purposes.
(3) The amount of the deduction is so much of the expected gross reduction in value over the term of the lease as is attributable to the period of account.
(4) The expected gross reduction in value over the term of the lease is—
(a) the starting value of the plant or machinery, less
(b) the amount which at the commencement of the term of the lease is expected to be its residual value (or, if section 365 applies, would have been expected to be that value had that value been estimated at that time).
(5) The expected gross reduction in value over the term of the lease that is attributable to the period of account is found by apportioning that reduction on a time basis according to the proportion of the term of the lease that falls in the period of account.
(6) For the meaning of “starting value”, see—
(a) section 364 (“starting value”: general), and
(b) section 365 (“starting value” where plant or machinery originally unqualifying).
(7) For the meaning of “residual value”, see section 381(4).
(1) This section is about the meaning of “starting value” in section 363 in relation to a long funding operating lease (“the section 363 lease”).
(2) But this section does not apply if the conditions in section 365(2) (“starting value” where plant or machinery originally unqualifying) are met.
(3) If the only use of the plant or machinery by the lessor has been the leasing of it under the section 363 lease as a qualifying activity, the starting value is the amount of the expenditure incurred by the lessor on the provision of the plant or machinery (“cost”).
(4) If subsection (3) does not apply, the starting value depends on the last previous use of the plant or machinery by the lessor.
(5) If that use was the leasing of it under another long funding operating lease as a qualifying activity, the starting value is the market value of the plant or machinery at the commencement of the term of the section 363 lease (“market value”).
(6) If that use was the leasing of it under a long funding finance lease as a qualifying activity, the starting value is the value at which the plant or machinery is recognised in the books or other finance records of the lessor at the commencement of the term of the section 363 lease.
(7) If that use was for the purposes of a qualifying activity other than leasing under a long funding lease, the starting value is the lower of cost and market value.
(8) For the meaning of “qualifying activity”, see section 381(4).
365 “Starting value” where plant or machinery originally unqualifying
(1) This section applies if the conditions in subsection (2) are met in relation to a long funding operating lease to which section 363 applies.
(2) The conditions are that—
(a) the lessor owns the plant or machinery as a result of having incurred expenditure on its provision for purposes other than those of a qualifying activity,
(b) the plant or machinery is brought into use by the lessor for the purposes of a qualifying activity on or after 1 April 2006, and
(c) that qualifying activity is the leasing of the plant or machinery under the lease.
(3) For the purposes of section 363 the starting value is the lower of—
(a) first use market value, and
(b) first use amortised market value.
(4) “First use market value” means the market value of the plant or machinery at the time when it is first brought into use for the purposes of the qualifying activity.
(5) “First use amortised value” means the value that the plant or machinery would have at the time when it is first brought into use for the purposes of the qualifying activity on the assumptions in subsection (6).
(6) The assumptions are that—
(a) the cost of acquiring the plant or machinery had been written off on a straight line basis over its remaining useful economic life, and
(b) any further capital expenditure incurred had been written off on a straight line basis over so much of its remaining economic life as remains at the time when the expenditure is incurred.
(7) For the meaning of “qualifying activity”, “remaining useful economic life” and writing off on a straight line basis, see section 381(4), (3)(i) and (5) respectively.
366 Long funding operating lease: lessor's additional expenditure
(1) This section applies if in any period of account—
(a) a company is the lessor of any plant or machinery under a long funding operating lease,
(b) the company incurs capital expenditure in relation to the plant or machinery (the “additional expenditure”), and
(c) the additional expenditure is not reflected in the market value of the plant or machinery at the commencement time (see subsection (7)).
(2) An additional deduction is allowed in calculating the profits of the company for each period of account—
(a) which ends after the incurring of the additional expenditure, and
(b) in which the company is the lessor of the plant or machinery under the lease.
(3) The amount of the deduction is so much of the expected reduction in value of the additional expenditure (“the expected reduction”) as is attributable to the period of account.
(4) The expected reduction is the amount of the additional expenditure, less the remaining residual value of the plant or machinery resulting from that expenditure.
(5) For how to determine that remaining residual value, see—
(a) section 367 (determination of remaining residual value resulting from lessor's first additional expenditure), and
(b) section 368 (determination of remaining residual value resulting from lessor's further additional expenditure).
(6) The amount of the expected reduction attributable to the period of account is found by apportioning that reduction on a time basis according to the proportion of the term of the lease that falls in the period of account.
(7) In this section “the commencement time” means—
(a) except where section 365 applies, the commencement of the term of the lease, and
(b) if that section applies, the time when the plant or machinery is first brought into use by the lessor for the purposes of the qualifying activity.
367 Determination of remaining residual value resulting from lessor's first additional expenditure
(1) This section sets out how the remaining residual value of the plant or machinery resulting from the additional expenditure (“RRV”) is determined for the purposes of section 366(4) if section 366 has not applied in relation to any previous additional expenditure incurred by the company in relation to the leased plant or machinery.
(2) RRV depends on whether—
(a) the amount (“ARV”) which is expected to be the residual value of the plant or machinery at the time when the additional expenditure is incurred, exceeds
(b) the amount (“CRV”) which at the commencement of the term of the lease is expected to be its residual value (or, if section 365 applies, would have been expected to be that value had that value been estimated at that time).
(3) If ARV exceeds CRV, RRV is the part of the excess that is a result of the additional expenditure.
(4) Otherwise, RRV is nil.
(5) For the meaning of “residual value”, see section 381(4).
368 Determination of remaining residual value resulting from lessor's further additional expenditure
(1) This section sets out how the remaining residual value of the plant or machinery resulting from the additional expenditure (“RRV”) is determined for the purposes of section 366(4) if section 366 has applied in relation to previous additional expenditure incurred by the company in relation to the leased plant or machinery.
(2) RRV depends on whether—
(a) the amount (“FARV”) which is expected to be the residual value of the plant or machinery at the time when the further additional expenditure is incurred, exceeds
(b) the sum of the amounts in subsection (3).
(3) Those amounts are—
(a) the amount which at the commencement of the term of the lease is expected to be the residual value of the plant or machinery (or, if section 365 applies, would have been expected to be that value had that value been estimated at that time), and
(b) any amounts that were subtracted under section 366(4) as the remaining residual value of the plant or machinery resulting from the previous additional expenditure.
(4) If FARV exceeds the sum of the amounts in subsection (3), RRV is the portion of the excess that is a result of the further additional expenditure.
(5) Otherwise, RRV is nil.
(6) For the meaning of “residual value”, see section 381(4).
369 Lessor under long funding operating lease: termination of lease
(1) This section applies in calculating the profits of a company for corporation tax purposes if it is the lessor immediately before the termination of a long funding operating lease.
(2) If the termination amount (see section 381(3)(l)) exceeds the sum of the amounts in subsection (3), an amount equal to the excess is treated as income of the company attributable to the lease arising in the period of account in which it terminates.
(3) The amounts referred to in subsection (2) are—
(a) the total amounts paid to the lessee that are calculated by reference to the termination value (see section 381(3)(m)),
(b) the excess relevant value for section 363 (see subsection (6)), and
(c) the excess expenditure for section 366 (see subsection (7)).
(4) If the sum of the amounts in subsection (3) exceeds the termination amount, the excess is treated as a revenue expense incurred by the company in connection with the lease in the period of account in which it terminates.
(5) No deduction is allowed in respect of any sums within subsection (3)(a).
(6) “The excess relevant value for section 363” is the amount (if any) by which—
(a) the starting value of the plant or machinery for the purposes of section 363(4) (lessor under long funding operating lease: periodic deduction), exceeds
(b) the total of the deductions allowable under section 363 for periods of account for the whole or part of which the company was the lessor.
(7) “The excess expenditure for section 366” is the amount (if any) by which—
(a) the total of any amounts of capital expenditure incurred by the company which constitute additional expenditure in the case of the lease for the purposes of section 366 (long funding operating lease: lessor's additional expenditure), exceeds
(b) the total of any deductions allowable under section 366 for periods of account for the whole or part of which the company was the lessor.
(1) Sections 360 to 369 do not apply in relation to a long funding lease in the case of a company which is or has been the lessor of any plant or machinery under the lease if the condition in subsection (2) is met.
(2) The condition is that any part of the expenditure incurred by the company on the acquisition of the plant or machinery for leasing under the lease—
(a) is allowable as a deduction (apart from sections 360 to 369) in calculating its profits or losses for corporation tax purposes, and
(b) is so allowable as a result of the plant or machinery forming part of its trading stock.
(3) For the purposes of this section the cases in which expenditure incurred by a company 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 company 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 its trading stock at that time.
371 Adjustments where sections 360 to 369 subsequently disapplied by section 370
(1) This section applies if—
(a) at any time any of sections 360 to 369 has applied for determining the amounts to be taken into account in calculating the profits or losses of a company for corporation tax purposes, and
(b) subsequently the condition in section 370(2) is met.
(2) If this section applies—
(a) the amounts mentioned in subsection (1)(a), and
(b) any other amounts which, as a result of section 370, are to be taken into account in calculating the profits or losses of the company for corporation tax purposes,
are subject to such adjustments as are just and reasonable.
(3) All such assessments and adjustments of assessments are to be made as are necessary to give effect to this section.
372 Lessor also lessee under non-long funding lease
(1) This section applies if—
(a) a company is the lessee of any plant or machinery under a lease (“lease A”),
(b) lease A is not a long funding lease,
(c) the company enters into a lease (“lease B”) of any of that plant or machinery (as lessor), and
(d) lease B is a long funding lease.
(2) Sections 360 to 369 do not apply in relation to lease B.
(3) This section must be treated as never having applied in relation to lease B if lease A—
(a) becomes a long funding lease as a result of section 70H of CAA 2001 (tax return by lessee treating lease as long funding lease), and
(b) has not ceased to be such a lease.
(1) Sections 360 to 369 do not apply in relation to a long funding lease in the case of a company which is or has been the lessor of any plant or machinery under the lease if conditions A, B and C are met.
(2) Condition A is that the lease forms part of any arrangement entered into by the company which includes one or more other transactions.
(3) Condition B is that the main purpose, or one of the main purposes, of the arrangement is to secure that, over the lease period, there would be a substantial difference between the GAAP total and the tax total.
(4) “The GAAP total” means the sum of the amounts under the arrangement which are, in accordance with generally accepted accounting practice—
(a) recognised in determining the company's profit or loss for any period, or
(b) taken into account in calculating the amounts which are so recognised.
(5) “The tax total” means the sum of the amounts under the arrangement which would (apart from this section) be taken into account in calculating the profits or losses of the company for corporation tax purposes.
(6) Condition C is that the difference referred to in subsection (3) would be attributable (wholly or partly) to the application of any of sections 360 to 369 in relation to the company by reference to the plant or machinery under the lease.
(7) This section is supplemented by sections 374 and 375.