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Capital Allowances Act 2001

Section 19: Special leasing of plant or machinery

142.This section is based on section 61(1) of CAA 1990 and section 434E(2) of ICTA. It defines the qualifying activity of “special leasing” for plant or machinery which is hired out otherwise than in the course of any other qualifying activity.

143.Subsection (1) introduces and defines the term “special leasing”. This term is not used in CAA 1990. That provides for such an activity to be treated as a trade separate from any other trade the person carries on. Other provisions then have to refer to such activities in terms of the legislation which define them. For example in section 31(1)(c) of CAA 1990:

the actual trade is not a separate trade which the shipowner is treated as carrying on by virtue of section 61(1).

144.The term “special leasing” allows more direct references – see for example section 128(2).

145.The section refers to “hiring out” plant or machinery. CAA 1990 refers to plant or machinery “let”. The use of the more colloquial phrase makes no practical difference. The section also omits the words in section 61(1) of CAA 1990 which provide that it does not matter whether the lessee does or does not carry on a qualifying activity. These are no longer needed. See Note 9 in Annex 2.

146.Subsection (3) is based on section 61(1)(b) of CAA 1990. It states when the separate qualifying activity is permanently discontinued. This is not clear in CAA 1990. Section 61(1)(b) of CAA 1990 provides for the plant or machinery to be treated as being used wholly for purposes other than those of the deemed trade when the lessor permanently ceases to let the plant or machinery otherwise than in the course of a trade. This requires the lessor to bring a disposal event into account. But it does not explicitly provide for the deemed trade to be permanently discontinued. However, any other interpretation would leave the lessor with:

  • no entitlement to a balancing allowance;

  • entitlement only to writing-down allowances for an indefinite period, in ever decreasing amounts; and

  • possibly allowances which are stranded because the lessor could only use them against income from letting the plant or machinery in question.

147.Subsection (3) accordingly reflects the alternative view that section 61(1) of CAA 1990 also provides for the deemed trade to end. See Change 15 in Annex 1.

148.Subsection (5) is based on section 434E(2) ICTA. That (and section 434D ICTA) were introduced by section 51 of, and Schedule 8 to, FA 1995. As the legislation relates directly to capital allowances it is incorporated in this Act.

149.Section 61(8) of CAA 1990 is omitted from this section. It provides for a “lease” to mean also an agreement for a lease. It is now unnecessary except in relation to section 61(4) of CAA 1990 (see section 70 and paragraph 353 below).

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