Law

Corporation Tax Act 2010

United Kingdom · statute

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In force since 2026-03-18, as the publisher states.

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Contains public sector information licensed under the Open Government Licence v3.0. Source: legislation.gov.uk, The National Archives.

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Contents: 1,852 provisions

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1,852 provisions

404 Amount to be nil if basic amount negative

If the basic amount given by the formula in section 399(3) is a negative amount, the amount is taken instead to be nil.

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405 Adjustment to the basic amount: qualifying 75% subsidiaries

(1) This section applies if— (a) the qualifying change of ownership occurs on any day as a result of section 393 (qualifying 75% subsidiaries), (b) the change occurs by reference to a company (“A”) ceasing to be a qualifying 75% subsidiary of another company (“B”) on that day, and (c) on that day A meets one of the conditions in subsection (2). (2) The conditions are— (a) that A becomes owned by a consortium of which B is a member, or (b) that A becomes a qualifying 75% subsidiary of a company owned by a consortium of which B is a member. (3) The basic amount is adjusted so that the amount of the income is limited to the appropriate percentage of the basic amount. (4) The appropriate percentage is found by subtracting the ownership percentage at the end of the day from 100%. (5) For this purpose “the ownership percentage” is whichever is the lowest of the following percentages— (a) the percentage of the ordinary share capital of A that is beneficially owned by B, (b) the percentage to which B is beneficially entitled of any profits available for distribution to equity holders of A, and (c) the percentage to which B would be beneficially entitled of any assets of A available for distribution to its equity holders on a winding up. (6) But if A becomes a qualifying 75% subsidiary of a company, subsection (5) is to be read as if references to that company were substituted for references to A.

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406 Adjustment to the basic amount: consortium relationships

(1) This section applies if the qualifying change of ownership occurs as a result of section 394 (consortium relationships). (2) In a case where that change arises only because the ownership proportion at the end of the day on which the change occurs is less than the ownership proportion at the start of the day, the amount of the income is limited to the appropriate proportion of the basic amount. (3) The appropriate proportion is found by subtracting the ownership proportion at the end of the day from the ownership proportion at the start of the day. (4) In any other case, the amount of the income is limited to the ownership proportion at the start of the day on which the change occurs of the basic amount. (5) In this section “ the ownership proportion ” has the same meaning as in section 394 (see section 394(3) and (4)).

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407 Migration

(1) This section applies if on any day (“ the relevant day ”)— (a) a company begins to be within the charge to corporation tax in respect of a business of leasing plant or machinery which it carries on otherwise than in partnership, and (b) a qualifying change of ownership in relation to the company occurs. (2) For the purposes of this Chapter, any plant or machinery is to be ignored in calculating the amount of the income treated as received on the relevant day if an amount would be shown in respect of it in a balance sheet of the company drawn up immediately before that day in accordance with generally accepted accounting practice.

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408 “Associated company”

(1) This section gives the meaning of “ associated company ” for the purposes of this Chapter. (2) References to an associated company in any provision other than subsection (6)(b) are to a company which is an associated company of the company that is the relevant company for the purposes of that provision on the day that is the relevant day for those purposes. (3) A company is an “associated company” of another company on any day if, at the start of that day— (a) one of the two has control of the other, or (b) both are under the control of the same person or persons, (4) Section 450 (meaning of “ control ” for the purposes of Part 10 (close companies)) applies for the purposes of subsection (3). (5) Subsection (6) applies if at the start of any day a company (“the consortium company”)— (a) is owned by a consortium, or (b) is a qualifying 75% subsidiary of a company owned by a consortium. (6) On that day the following companies are also associated companies of the consortium company— (a) any relevant member of the consortium on that day, and (b) any company which is an associated company of any relevant member of the consortium on that day. (7) For the purposes of subsection (6) a member of the consortium is a “relevant” member on any day if— (a) it is a member of the consortium at the start of the day, (b) one or more qualifying changes of ownership occur in relation to the consortium company on that day, and (c) any of those changes occur in a case where the member of the consortium is regarded as “ E ” for the purposes of section 394 (consortium relationships).

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409 Introduction to Chapter

(1) This Chapter applies if, in the case of a company carrying on a business of leasing plant or machinery in partnership with other persons— (a) there is a qualifying change in the company's interest in the business, (see sections 415 and 416), or (b) there is a qualifying change of ownership in relation to the company (see sections 392 to 398). (2) Sections 417 to 424 apply in the case mentioned in subsection (1)(a). (3) Sections 425 to 429 apply in the case mentioned in subsection (1)(b). (4) Sections 410 to 414 determine for the purposes of this Chapter whether on any day a business carried on by a company in partnership with other persons is a business of leasing plant or machinery. (5) In sections 410 to 414— (a) that day is referred to as “the relevant day”, (b) that company is referred to as “the partner company”, and (c) that partnership is referred to as “the partnership”. (6) Elsewhere in this Chapter references to the partner company are to the company referred to in subsection (1)(a) or, as the case may be, subsection (1)(b).

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410 “Business of leasing plant or machinery”

(1) A business carried on by the partnership is a business of leasing plant or machinery on the relevant day if condition A or B is met. (2) Condition A is that at least half of the relevant plant or machinery value relates to plant or machinery falling within subsection (6). (3) Subsection (2) is supplemented by section 411. (4) Condition B is that at least half of the partnership's income in the past 12 months derives from plant or machinery falling within subsection (6). (5) Subsection (4) is supplemented by section 414. (6) Plant or machinery falls within this subsection if— (a) it is or at any time in the past 12 months has been leased out by the partnership or a qualifying associate, (b) the lease under which it is or has been leased out is a plant or machinery lease but not an excluded lease of background plant or machinery for a building (see section 437(3)), and (c) if the plant or machinery satisfies paragraph (a) only because it is or has been leased out by a qualifying associate, the lessee under the lease is or was someone other than the partnership. (7) For the purposes of subsection (6)— (a) plant or machinery is “leased out” by a person if it is subject to a plant or machinery lease under which that person is a lessor, (b) “ associate ” means a person who is a partner in the partnership or connected with a partner in the partnership (see also subsection (8)), and (c) a person is a “qualifying associate” if the person is an associate at the start of the relevant day or at any earlier time in the past 12 months (whether or not a time when the plant or machinery was leased out by the person). (8) In relation to a corporate partner who is owned by a consortium or is a qualifying 75% subsidiary of a company owned by a consortium, the reference in subsection (7)(b) to a person connected with a partner also includes— (a) any member of the consortium, and (b) any person connected with such a member. (9) A reference in this section to the past 12 months is to the period of 12 months ending with the relevant day.

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411 “Relevant plant or machinery value” for condition A in section 410

(1) This section applies for the purposes of condition A in section 410. (2) The relevant plant or machinery value is the sum of the amounts in subsection (3), but subject to section 413 (relevant plant or machinery value where partnership lessee under long funding lease). (3) The amounts are— (a) the amounts (if any) that would be shown in respect of plant or machinery in the appropriate balance sheet of the partnership drawn up as at the start of the relevant day, and (b) the amounts (if any) that would be shown in the appropriate balance sheet of the partnership drawn up as at the end of the relevant day in respect of relevant transferred plant or machinery. (4) For the purposes of subsection (3)(b) plant or machinery is “relevant transferred plant or machinery” if an amount in respect of it would be shown in the appropriate balance sheet of any company mentioned in subsection (5) drawn up as at the start of the relevant day. (5) Those companies are— (a) the partner company, (b) any company which is an associated company of the partner company on the relevant day (see section 430), (c) any other corporate partner in relation to whose interest in the business there is a qualifying change on the relevant day, (d) any other corporate partner in relation to which there is a qualifying change of ownership on the relevant day, and (e) any company which is an associated company of any other corporate partner mentioned in paragraph (c) or (d) on the relevant day. (6) For the purposes of subsection (5) “any other corporate partner” means a company which— (a) carries on the business at the start of the relevant day, and (b) is within the charge to corporation tax in respect of the business. (7) This section is supplemented by section 412.

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412 Provision supplementing section 411

(1) For the purposes of section 411 and this section the amounts shown in the appropriate balance sheet of the partnership or, as the case may be, any company in respect of any plant or machinery are— (a) the amounts shown in that balance sheet as the net book value (or carrying amount) in respect of the plant or machinery, and (b) the amounts shown in that balance sheet as the net investment in respect of finance leases of the plant or machinery. (2) If— (a) any of the plant or machinery is a fixture in any land (see section 437(5)), and (b) the amount which falls (or would fall) to be shown in an appropriate balance sheet as the net book value (or carrying amount) of the land includes (or would include) an amount in respect of the fixture, the amount of the net book value (or carrying amount) in respect of the fixture is determined on a just and reasonable basis. (3) If— (a) any of the plant or machinery is subject to a finance lease (see section 437(4)), and (b) any land or other asset which is not plant or machinery is subject to that lease, the amount of the net investment in respect of the finance lease of that plant or machinery is determined on a just and reasonable basis. (4) In section 411 and this section any reference to any amount shown in the appropriate balance sheet of the partnership or a company is to the amount which, on the assumptions in subsection (5), falls (or would fall) to be shown in a balance sheet of the partnership or, as the case may be, the company. (5) The assumptions are that— (a) the balance sheet is drawn up in accordance with generally accepted accounting practice, and (b) if the partnership acquired any plant or machinery in circumstances in which this paragraph applies, the plant or machinery had been acquired for an amount equal to its ascribed value as at the relevant day. (6) Paragraph (b) of subsection (5) applies if— (a) the relevant day falls on or after 22 March 2006, (b) the plant or machinery was acquired directly or indirectly from a person who was connected with the partnership when the acquisition took place, and (c) either the acquisition took place on or after 5 December 2005 or the person from whom the plant or machinery was so acquired was also connected with the partnership on that date.

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413 Relevant plant or machinery value where partnership lessee under long funding lease etc

(1) Any amount included in the amounts mentioned in section 411(2) in respect of plant or machinery to which this section applies is to be deducted from the sum mentioned in that section. (2) But the ascribed value as at the relevant day of any plant or machinery to which this section applies is to be added to that sum or, if that sum is nil, is the relevant plant or machinery value. (3) This section applies to plant or machinery if— (a) condition A or B is met at the start of the relevant day, or (b) the plant or machinery is acquired by the partnership from any company mentioned in section 411(5) on the relevant day and condition A or B is met at the end of that day. (4) Condition A is that the partnership is the lessee of the plant or machinery under a long funding finance lease or a long funding operating lease. (5) Condition B is that the partnership is treated as the owner of the plant or machinery under section 67 of CAA 2001 (hire purchase and similar contracts).

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414 Partnership's income for condition B in section 410

(1) This section applies for the purposes of condition B in section 410. (2) The reference to the partnership's income is to its income as calculated for corporation tax purposes. (3) Any apportionment necessary to determine the amount of the partnership's income attributable to the period of 12 months ending with the relevant day is to be made on a time basis. (4) But— (a) that basis does not apply if it would work in an unjust or unreasonable way in relation to any person, and (b) in that case the apportionment is to be made instead on a just and reasonable basis. (5) The proportion of the income that derives from plant or machinery falling within section 410(6) is to be determined on a just and reasonable basis.

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415 “Qualifying change” in company's interest in a business

(1) For the purposes of the sales of lessors Chapters there is a qualifying change in a company's interest in a business on any day if its relevant percentage share at the end of the day is less than its relevant percentage share at the start of the day. (2) In this section “relevant percentage share”, in relation to a company's interest in a business, means its percentage share in the profits or loss of the business (determined in accordance with section 416). (3) For the purposes of this section any reference to a company's share in the profits or loss of the business includes a nil share (whether as a result of the dissolution of the partnership or otherwise).

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416 Determining the percentage share in the profits or loss of business

(1) For the purposes of this Chapter a company's percentage share in the profits or loss of a business at any time is determined on a just and reasonable basis. (2) In making that determination, regard must be had, in particular, to any matter that would be taken into account in determining under section 1262 of CTA 2009 (but without regard to sections 1263 and 1264 of that Act) the company's share at that time in the profits or loss of the business.

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417 Partner company's income and other companies' matching expense

(1) This section applies if on any day (“the relevant day”)— (a) the partner company carries on a business of leasing plant or machinery in partnership with other persons, (b) the partner company is within the charge to corporation tax in respect of the business, and (c) there is a qualifying change in the partner company's interest in the business on the relevant day (see sections 415 and 416). (2) On the relevant day— (a) the partner company is treated as receiving an amount of income, and (b) any other company which carries on the business on that day and which is within the charge to corporation tax in respect of the business is treated as incurring an expense. (3) The income— (a) is treated as a receipt of the partner company's notional business (see subsection (6)), and (b) is brought into account in calculating for corporation tax purposes the profits of that business for the accounting period in which it is treated as received. (4) Except where subsection (5) applies, the expense— (a) is treated as an expense of the other company's notional business, and (b) is allowed as a deduction in calculating for corporation tax purposes the profits of that business for the accounting period in which it is treated as incurred. (5) If at the end of the relevant day the other company is the only person carrying on the business, the expense— (a) is treated as an expense incurred by the other company in its carrying on of the business (at a time when it is the only person carrying it on), and (b) is allowed as a deduction in calculating for corporation tax purposes the profits of the business for the accounting period in which it is treated as incurred. (6) In this Chapter a company's “notional business” means the business the profits or losses of which are determined, in relation to the company, under section 1259 of CTA 2009 (calculation of firm's profits and losses). (7) This section is supplemented by sections 418 and 419. (8) This section is subject to section 420 (exception: companies carrying on business ceasing to share in its profits).

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418 Amount of income and expense

(1) The amount of the income under section 417 is calculated in accordance with sections 421 to 423. (2) The amount of the expense of the other company under section 417 is calculated in accordance with section 424.

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419 Relief for expense otherwise giving rise to carried forward loss

(1) This section applies if— (a) a company is treated under section 417(5) as incurring an expense in an accounting period of the company (“period 1”), (b) the company makes a loss in period 1 or a later accounting period, (c) apart from this section some or all of that loss (“the carried forward loss”) would be carried forward to the next accounting period of the company after the accounting period in which the loss is made (“the subsequent period”), (d) some or all of the carried forward loss (“the derived loss”) derives from— (i) the expense under section 417(5), or (ii) an expense treated as arising under subsection (2) and allowed as a deduction for the accounting period in which the loss is made, and (e) the subsequent period starts within the period of 5 years beginning with the relevant day within the meaning of section 417 and does not start as a result of section 383 or 425. (2) Instead of being so carried forward, the derived loss is to be treated for corporation tax purposes as giving rise to an expense of an amount equal to— D L + D L × D × R 365 where— DL is the derived loss, D is the number of days in the accounting period in which the loss is made, and R is the percentage rate applicable to section 826 of ICTA under section 178 of FA 1989. (3) The amount of the expense under this section is allowed as a deduction in calculating for corporation tax purposes the profits of the business for the subsequent period. (4) For the purpose of determining how much of a loss derives from an expense under section 417(5) or an expense within subsection (1)(d)(ii), the loss is to be calculated on the basis that that expense is the final amount to be deducted.

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420 Exception: companies carrying on business ceasing to share in its profits

(1) Section 417 does not apply if conditions A, B and C are met. (2) Condition A is that at the end of the relevant day none of the companies by which the business was carried on any longer has any share in the profits or loss of the business. (3) Condition B is that, in consequence of what happens on the relevant day, the disposal value of all the plant and machinery that was used for the purposes of the business and in respect of which capital allowances have been claimed is to be brought into account under section 61 of CAA 2001. (4) Condition C is that the disposal value to be brought into account in relation to all the plant or machinery is the price that the plant or machinery would fetch in the open market on that day.

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421 The amount of the income: the basic amount

(1) This section determines the amount of the income under section 417 when a qualifying change in the interest of the partner company in a business of leasing plant or machinery occurs on any day (“the relevant day”). (2) The amount of the income is found by— (a) applying the formula in subsection (3) to give the basic amount, and (b) making such adjustment to the basic amount as is required in accordance with section 422 or 423. (3) The formula is— P M - T W D V (4) In this section “PM” has the meaning given by section 400, but— (a) reading any reference in that section to the relevant company as a reference to the partnership, and (b) reading the reference in section 400(4) to an associated company as a reference to a qualifying company (see subsection (7)). (5) In this section “TWDV” means the sum of— (a) the total amount of unrelieved qualifying expenditure in single asset pools for the new chargeable period that would be carried forward in the pools from the old chargeable period under section 59 of CAA 2001 (unrelieved qualifying expenditure), (b) the total amount of unrelieved qualifying expenditure in class pools for the new chargeable period that would be carried forward in the pools from the old chargeable period under that section, and (c) the amount of unrelieved qualifying expenditure in the main pool for the new chargeable period that would be carried forward in the pool from the old chargeable period under that section. (6) For the purposes of subsection (5)— (a) it is to be assumed that the chargeable period (within the meaning of CAA 2001) of the partnership ends on the relevant day (“the old chargeable period”) and a new one begins on the following day (“the new chargeable period”), and (b) in calculating the amounts of unrelieved qualifying expenditure mentioned in subsection (5)(a) to (c), any part of those amounts that is relevant new expenditure is to be left out of account. (6A) Relevant new expenditure” means— (a) expenditure attributable to plant or machinery acquired by the partnership on the relevant day except for plant or machinery acquired on that day from a qualifying company, and (b) expenditure incurred on the relevant day but attributable to plant or machinery acquired by the partnership before that day. (6B) In subsection (6A)— (a) “ acquired ” includes brought into use or made available for use for the first time for the purposes of the business, and (b) a reference to anything acquired or incurred includes anything treated as acquired or treated as incurred. (7) In this section “qualifying company” means each of the following— (a) the partner company, (b) any company which is an associated company of the partner company on the relevant day, (c) any other corporate partner in relation to whose interest in the business there is a qualifying change on the relevant day, (d) any other corporate partner in relation to which there is a qualifying change of ownership on the relevant day, and (e) any company which is an associated company of any other corporate partner mentioned in paragraph (c) or (d) on the relevant day. (8) For the purposes of subsection (7) “any other corporate partner” means a company which— (a) carries on the business at the start of the relevant day, and (b) is within the charge to corporation tax in respect of the business.

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422 Amount to be nil if basic amount negative

If the basic amount given by the formula in section 421(3) is a negative amount, the amount is taken instead to be nil.

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423 Adjustment to the basic amount

(1) The amount of the company's income under section 417 is limited to the appropriate percentage of the basic amount. (2) The appropriate percentage is found by subtracting the company's relevant percentage share at the end of the day on which it is treated as receiving the income from its relevant percentage share at the start of the day. (3) In this section “relevant percentage share” has the same meaning as it has for the purposes of section 415 (see subsection (2) of that section).

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424 The amount of expense

(1) This section applies if, as a result of a qualifying change in the partner company's interest in a business on any day— (a) the company is treated as receiving an amount of income under section 417 on that day, (b) any other company is treated as incurring an expense under that section on that day, (c) the other company's percentage share in the profits or loss of the business is greater at the end than at the start of that day, and (d) the increase (or any part of the increase) is wholly attributable to the change in the partner company's interest in the business. (2) Except where subsection (4) applies, the amount of the expense of the other company is limited to the appropriate percentage of the amount of the income. (3) The appropriate percentage is— O C I P C D where— OCI is the increase in the other company's percentage share in the profits or loss of the business that is wholly attributable to the change in the partner company's interest in the business, and PCD is the decrease in the partner company's percentage share in the profits or loss of the business. (4) If section 417(5) applies (business carried on by the other company alone), the amount of the expense of the other company is equal to the amount of the income. (5) For the purposes of this section any reference to an increase in the other company's percentage share in any profits or loss of the business includes an increase from a nil share (whether as a result of its becoming a partner or otherwise).

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425 Partner company's income and matching expense in different accounting periods

(1) This section applies if on any day (“the relevant day”)— (a) a company carries on a business of leasing plant or machinery in partnership with other persons (see sections 410 to 414), (b) the company is within the charge to corporation tax in respect of the business, and (c) there is a qualifying change of ownership in relation to the company. (2) On the relevant day— (a) the company is treated as receiving an amount of income, and (b) the accounting period of the company ends. (3) The income— (a) is treated as a receipt of the company's notional business (see section 417(6)), and (b) is brought into account in calculating for corporation tax purposes the profits of that business for that accounting period. (4) On the day following the relevant day— (a) the company is treated as incurring an expense, and (b) a new accounting period of the company begins. (5) The expense— (a) is treated as an expense of the company's notional business, and (b) is allowed as a deduction in calculating for corporation tax purposes the profits of that business for that new accounting period. (6) This section is supplemented by sections 426 to 428.

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426 Amount of income and expense

(1) The amount of the income under section 425 is calculated in accordance with section 429. (2) The amount of the expense under section 425 is the same as the amount of the income.

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427 No carry back of loss against the income

(1) This section applies if the notional business carried on by the company is a trade carried on wholly or partly in the United Kingdom the profits of which are chargeable to corporation tax under Chapter 2 of Part 3 of CTA 2009 (trading income). (2) No part of a loss may be deducted under section 37(3)(b) (relief for trade losses against total profits of earlier accounting periods) or section 45F (relief for terminal trade losses) from so much of the company's total profits as derive from the income. (3) For the purpose of determining how much of those profits derive from the income, those profits are to be calculated on the basis that the income is the final amount to be added.

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428 Relief for expense otherwise giving rise to carried forward loss

(1) This section applies if— (a) there is a qualifying change of ownership in relation to a company on any day (“the relevant day”), (b) on the following day the company is treated under section 425 as incurring an expense of a business and an accounting period of the company (“period 1”) begins, (c) the company makes a loss in period 1 or a later accounting period, (d) apart from this section some or all of that loss (“the carried forward loss”) would be carried forward to the next accounting period of the company after the accounting period in which the loss is made (“the subsequent period”), (e) some or all of the carried forward loss (“the derived loss”) derives from— (i) the expense under section 425, or (ii) an expense treated as arising under subsection (2) and allowed as a deduction for the accounting period in which the loss is made, and (f) the subsequent period starts within the period of 5 years beginning immediately after the relevant day and does not start as a result of section 383 or 425. (2) Instead of being so carried forward, the derived loss is to be treated for corporation tax purposes as giving rise to an expense of an amount equal to— D L + D L × D × R 365 where— DL is the derived loss, D is the number of days in the accounting period in which the loss is made, and R is the percentage rate applicable to section 826 of ICTA under section 178 of FA 1989. (3) The amount of the expense under this section is allowed as a deduction in calculating for corporation tax purposes the profits of the business for the subsequent period. (4) For the purpose of determining how much of the carried forward loss derives from the expense under section 425 or an expense within subsection (1)(e)(ii), the loss is to be calculated on the basis that that expense is the final amount to be deducted.

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429 The amount of the income

(1) This section determines the amount of the income under section 425 when a qualifying change of ownership in relation to a company carrying on a business of leasing plant or machinery in partnership with other persons occurs on any day (“the relevant day”). (2) The amount of the income is found by first— (a) applying the formula in section 421(3) to give the basic amount (as if the company were “the partner company” mentioned in section 421), and (b) making any adjustment in accordance with any of sections 404 to 406 to the basic amount. (3) The amount is then limited to the appropriate percentage of the amount given as a result of subsection (2). (4) If there is no qualifying change in the company's interest in the business on the relevant day, the appropriate percentage is the percentage share of the company in the profits or loss of the business on the relevant day. (5) If there is a qualifying change in the company's interest in the business on the relevant day, the appropriate percentage is the percentage share of the company in the profits or loss of the business at the end of the relevant day.

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430 “Associated company”

(1) This section gives the meaning of “associated company” for the purposes of this Chapter. (2) A company is an “associated company” of another company on any day if, at the start of that day— (a) one of the two has control of the other, or (b) both are under the control of the same person or persons. (3) Section 450 (meaning of “control” for the purposes of Part 10 (close companies)) applies for the purposes of subsection (2). (4) Subsections (5) and (6) apply if, at the start of any day, a company (“the consortium company”)— (a) is owned by a consortium, or (b) is a qualifying 75% subsidiary of a company owned by a consortium. (5) If there is any qualifying change in the consortium company's interest in a business on that day, references to an associated company of the consortium company on that day include— (a) any member of the consortium at the start of that day, and (b) any company which is an associated company of any such member on that day. (6) If there is any qualifying change of ownership in relation to the consortium company on that day, but there is no qualifying change in its interest in a business on that day, references to an associated company of the consortium company on that day include— (a) any relevant member of the consortium on that day, and (b) any company which is an associated company of any relevant member of the consortium on that day. (7) For the purposes of subsection (6) a member of the consortium is a “relevant” member on the day on which the qualifying change of ownership occurs if— (a) it is a member of the consortium at the start of the day, and (b) the change is a relevant change within section 394(2), (6) or (8) (consortium relationships) in relation to which the member is regarded as “E” for the purposes of section 394.

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431 “Profits” and “loss”

(1) In this Chapter “profits” does not include chargeable gains. (2) References in this Chapter to “loss” are to be read accordingly.

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432 Restrictions on relief for Chapter 3 or 4 expenses: introduction

(1) Sections 433 and 433A apply if— (a) a company is treated as incurring an expense under any provision of Chapter 3 or 4, (b) the expense arises directly or indirectly in consequence of, or otherwise in connection with, any arrangements, (c) the main purpose, or one of the main purposes, of the arrangements is to secure that the company is treated as incurring the expense, and (d) the company makes a loss that wholly or partly derives from the expense. (1A) For the purposes of subsection (1), an expense is to be disregarded if, and to the extent that, section 730D(2) (disallowance of deductible amounts: profit transfers) applies to it. (2) The restrictions in section 433 apply in respect of so much of the loss as derives from the expense (in that section and section 433A referred to as “the restricted loss amount”). (3) For the purpose of determining how much of a loss derives from the expense, the loss is to be calculated on the basis that the expense is the final amount to be deducted. (4) In this section “arrangements” includes any agreement, understanding, scheme, transaction or series of transactions— (a) whether or not legally enforceable, and (b) whether or not the company is a party to the arrangements.

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433 Restrictions applying to the restricted loss amount

(1) The restrictions in subsections (2), (5) and (6) apply to the restricted loss amount. (2) Relief is not to be given to the company under any provision specified in subsection (3) in respect of the restricted loss amount, except by way of set off against any relevant leasing income (see subsection (4)). (3) Those provisions are— (a) section 45 (carry forward of pre-1 April 2017 trade loss against subsequent trade profits), (ab) section 45B (carry forward of post-1 April 2017 trade loss against subsequent trade profits), (b) section 62 (relief for losses made in UK property business), (c) section 63 (company with investment business ceasing to carry on UK property business), (d) section 66 (relief for losses made in overseas property business), and (e) section 91 (relief for losses from miscellaneous transactions). (4) In subsection (2) “relevant leasing income” means any income deriving from any plant or machinery lease which— (a) is not an excluded lease of background plant or machinery for a building (see section 437(3)), and (b) is entered into before the day on which the company is treated as incurring the expense mentioned in section 432(1)(a). (5) If the business carried on by the company is a trade, relief is not to be given to the company under section 37 (relief for trade losses against total profits) or section 45A (carry forward of trade loss against total profits) in respect of the restricted loss amount. (6) The restricted loss amount is not available for set off— (a) by way of group relief in accordance with Chapter 2 of Part 5 (surrender of company's losses etc for an accounting period), or (b) by way of group relief for carried-forward losses in accordance with Chapter 2 of Part 5A (surrender of company's carried forward losses)

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433A Restrictions not applying to the restricted loss amount

(1) Any deduction made under section 45 or 45B in respect of the restricted loss amount is to be ignored for the purposes of the restriction in section 269ZB (restriction on sum of deductions from trading profits). (2) Any deduction made under section 62 or 63 in respect of the restricted loss amount is to be ignored for the purposes of the restriction in section 269ZD (restriction on sum of deductions from total profits).

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434 Introduction to sections 435 and 436

(1) Sections 435 and 436 apply if a question arises as to the application of Chapter 3 or 4. (2) For the purposes of this section and sections 435 and 436 “a question as to the application of Chapter 3 or 4” means question A, B or C. (3) Question A is whether any company carries on a business of leasing plant or machinery (whether alone or in partnership) for the purposes of any provision of the sales of lessors Chapters. (4) Question B is the question of the amount (if any) of any income or expense which any company is treated as receiving or incurring under any provision of the sales of lessors Chapters. (5) Question C is the question of the amount of any disposal value to be substituted by section 398G(3).

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435 Disregard of increases and decreases in certain amounts

(1) This section applies if— (a) an amount mentioned in subsection (1A) is to be ascertained for the purpose of determining a question as to the application of Chapter 3 or 4, (b) apart from this section, there would be a reduction or increase in any such amount, (c) the reduction or increase arises directly or indirectly in consequence of, or otherwise in connection with, any arrangements, and (d) the main purpose, or one of the main purposes, of the arrangements is to secure that there is a relevant tax advantage. (1A) The amounts are— (a) the relevant plant or machinery value, (b) the value of plant or machinery falling within section 387(7) or 410(6), (c) the relevant company's or partnership's income in the period of 12 months ending with the relevant day, (d) the amount of PM, (e) the amount of TWDV, (f) the amount of any disposal value to be substituted by section 398G(3), and (g) any underlying amount required to calculate or verify an amount mentioned in any of the preceding paragraphs. (2) There is a relevant tax advantage if (apart from this section)— (a) any company would not be regarded for the purposes of any provision of Chapter 3 or 4 as carrying on a business of leasing plant or machinery (whether alone or in partnership), (b) the amount of any income which any company is treated as receiving under any such provision would be reduced, ... (c) the amount of any expense which any company is treated as incurring under any such provision would be increased , or (d) the amount of any disposal value to be substituted by section 398G(3) would be reduced. (3) For the purpose of determining the question as to the application of Chapter 3 or 4, the reduction or increase in the amount to be ascertained must be ignored. (4) In this section— “arrangements” includes any agreement, understanding, scheme, transaction or series of transactions— whether or not legally enforceable, and whether or not the company for which the relevant tax advantage is intended to be secured is a party to the arrangements, “increase” includes an increase from nil, and “reduction” includes a reduction to nil.

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436 Balance sheet amounts determined on assumption company has no liabilities

(1) This section applies if— (a) a company owns any plant or machinery at any time on any day (“the relevant day”), (b) for the purpose of determining a question as to the application of Chapter 3 or 4 regard must be had to the amount (if any) which falls (or would fall) to be shown in any balance sheet of the company in respect of the plant or machinery, and (c) condition A or B is met. (2) Condition A is met if, apart from this section, there would be no amount which would fall to be shown in the balance sheet of the company in respect of the plant or machinery. (3) Condition B is met if the amount which, apart from this section, would fall to be shown in the balance sheet of the company in respect of the plant or machinery is less than the amount which would fall to be so shown on the assumption in subsection (4). (4) The assumption is that the company has no liabilities of any kind at any time on the relevant day. (5) For the purpose of determining the question as to the application of Chapter 3 or 4, the amount which falls (or would fall) to be shown in any balance sheet of the company in respect of the plant or machinery is to be determined on the assumption in subsection (4) (as well as on the other assumptions applicable under other provisions of those Chapters). (6) In this section “liabilities” includes any share capital issued by the company which falls to be treated for accounting purposes as a liability. (7) Except for subsection (6), this section applies to a partnership as it applies to a company, and references to “company” are to be read accordingly.

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437 Interpretation of the sales of lessors Chapters

(1) This section applies for the purposes of the sales of lessors Chapters. (2) “Company” means a body corporate. (3) “Excluded lease of background plant or machinery for a building” has the meaning given in Chapter 6A of Part 2 of CAA 2001 (see section 70R of that Act). (4) “Finance lease” means— (a) in relation to any person, a lease that, in accordance with generally accepted accounting practice, falls (or would fall) to be treated in the accounts of that person as a finance lease or loan, or (b) in relation to a lessee under a right-of-use lease, a lease that would fall to be treated in the accounts of the lessee as a finance lease if the lessee were required under generally accepted accounting practice to determine whether the lease falls to be so treated. (5) “Fixture”— (a) means any plant or machinery that is so installed or otherwise fixed in or to a building or other description of land as to become, in law, part of that building or other land, and (b) includes any boiler or water-filled radiator installed in a building as part of a space or water heating system. (6) “Long funding finance lease”, “long funding lease”, “long funding operating lease” and “right-of-use lease” have the meanings given in Part 2 of CAA 2001 (see section 70YI(1) of that Act). (7) “Plant or machinery” has the same meaning as in Part 2 of CAA 2001. (8) “Plant or machinery lease” has the meaning given in Chapter 6A of that Part (see section 70YI(1) of that Act). (8A) Property business” means a UK property business or an overseas property business. (9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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437A Determining the ascribed value of plant or machinery

(1) For the purposes of the sales of lessors Chapters, the ascribed value of plant or machinery at any given time (“ the relevant time ”) is the value determined in accordance with this section. (2) Subsection (3) applies to plant or machinery if— (a) it is subject to a plant or machinery lease at the relevant time, (b) the relevant company or partnership is a lessor under the lease, and (c) subsection (5) does not apply to it. (3) The ascribed value of plant or machinery to which this subsection applies is the higher of— (a) the market value of the plant or machinery at the relevant time, and (b) the present value at that time of the lease referred to in subsection (2). (4) Subsection (5) applies to plant or machinery if— (a) it is subject to a plant or machinery lease at the relevant time, (b) the lease is an equipment lease within the meaning of Chapter 14 of Part 2 of CAA 2001 (fixtures), (c) the relevant company or partnership is the equipment lessor in respect of the lease (see section 174 of that Act), and (d) the equipment lessor is treated at that time as the owner of the plant or machinery by virtue of an election made in reliance on section 177(1)(a)(i) of that Act (which permits elections if the conditions in section 178 are met in relation to the lease). (5) The ascribed value of plant or machinery to which this subsection applies is the present value at the relevant time of the lease referred to in subsection (4). (6) The ascribed value of plant or machinery to which neither subsection (3) nor subsection (5) applies is the market value of the plant or machinery at the relevant time.

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437B Section 437A: supplementary

(1) This section supplements section 437A. (2) Market value is to be determined on the assumption of a disposal by an absolute owner free from all leases and other encumbrances (including any agreement or arrangement that is or includes a plant or machinery lease). (3) If plant or machinery is a fixture, its market value is so much of the market value of the relevant land and the fixture together as is attributable to the fixture on a just and reasonable apportionment. (4) “ Relevant land ” has the meaning given in section 173(2) of CAA 2001.

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437C Present value of a lease

(1) For the purposes of section 437A, the present value of a lease is the present value of the amounts mentioned in subsection (2). (2) The amounts are— (a) the amounts payable under the lease after the relevant time, and (b) any residual amount. (3) Subsection (2)(a) does not apply to amounts payable by the lessor or to amounts that represent— (a) charges for services, or (b) qualifying UK or foreign tax to be paid by the lessor. (4) Present value is to be calculated by using the interest rate implicit in the lease. (5) The interest rate implicit in the lease is the interest rate that would apply in accordance with normal commercial criteria, including, in particular, generally accepted accounting practice (where applicable). (6) But if a rate cannot be determined in accordance with subsection (5), the interest rate implicit in the lease is taken to be the incremental borrowing rate. (7) For this purpose, the incremental borrowing rate has the same meaning as it has for accounting purposes. (7A) The Treasury may by regulations amend this section for the purpose of replacing references to the incremental borrowing rate with references to another rate. (8) If— (a) the lessee has an option to continue the lease for a period after expiry of its initial term, and (b) it is reasonably certain at the relevant time that the lessee will exercise that option, references in this section to amounts payable under the lease include amounts payable under the lease as continued for any such period. (9) If the lease also relates to land or assets that are not plant or machinery, the present value of the lease is so much of the present value of the amounts mentioned in subsection (2) as is attributable to the plant or machinery on a just and reasonable apportionment. (10) In this section, “qualifying UK or foreign tax” and “residual amount” have the meaning given in section 70YE of CAA 2001.

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438 Overview of Part

(1) Chapter 2 defines “close company” and other expressions used in this Part. (2) Chapter 3 imposes a charge to tax in connection with loans or advances by close companies to participators. (2A) Chapter 3A imposes a charge to tax in connection with other arrangements involving close companies and participators. (2B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) Chapter 4 contains a power to obtain information in connection with close companies. (4) For the meaning of “participator”, see section 454.

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439 “Close company”

(1) For the purposes of the Corporation Tax Acts, a “close company” is a company in relation to which condition A or B is met. (2) Condition A is that the company is under the control— (a) of 5 or fewer participators, or (b) of participators who are directors. (3) Condition B is that 5 or fewer participators, or participators who are directors, together possess or are entitled to acquire— (a) such rights as would, in the event of the winding up of the company (“the relevant company”) on the basis set out in section 440, entitle them to receive the greater part of the assets of the relevant company which would then be available for distribution among the participators, or (b) such rights as would, in that event, so entitle them if there were disregarded any rights which any of them or any other person has as a loan creditor (in relation to the relevant company or any other company). (4) For exceptions to this section, see sections 442 to 447 (companies which are not to be close companies). (5) Section 451 (section 450: rights to be attributed etc) applies for the purposes of subsection (3) and section 440 as it applies for the purposes of section 450. (6) See also section 441 (treatment of some persons as participators or directors for the purposes of subsection (3)). (7) For the meaning of— (a) “control”, see sections 450 and 451, (b) “director”, see section 452, and (c) “loan creditor”, see section 453.

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