Capital Allowances Act 2001

[F2 Finance leaseback: parties' income and profits U.K.

Textual Amendments

F2 Ss. 228A-228J and cross-heading inserted (with effect in accordance with s. 134(3) of the amending Act) by Finance Act 2004 (c. 12), s. 134

[F3 228A Application of sections 228B and 228C U.K.

(1) Sections 228B and 228C apply where plant or machinery is the subject of a lease and finance leaseback.

(2) Plant or machinery is the subject of a lease and finance leaseback if—

(a) a person (“S”) leases the plant or machinery to another (“B”),

(b) after the date of that transaction, the use of the plant or machinery falls within sub-paragraph (i), (ii) or (iii) of section 221(1)(b), and

(c) it is directly as a consequence of having been leased under a finance lease that the plant or machinery is available to be so used after that date.

(3) For the purposes of subsection (2), S leases the plant or machinery to B only if—

(a) S grants B rights over the plant or machinery,

(b) consideration is given for that grant, and

(c) S is not required to bring all of that consideration into account under this Part.]

Textual Amendments

F3 S. 228A substituted (with effect in accordance with Sch. 20 para. 12(12) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 12(2)

228B [F4 S's income or profits [F5 etc]: deductions] U.K.

(1) For the purpose of income tax or corporation tax, in calculating [F6 S's] income or profits for a period of account the amount deducted in respect of amounts payable under the leaseback may not exceed the permitted maximum.

(2) The permitted maximum is [F7 the amount of the finance charges shown in the accounts.]

(3) In relation to a period of account during which the leaseback terminates, the permitted maximum shall also include an amount calculated in accordance with subsection (4).

(4) The calculation is—

where—

• “Current Book Value” means the net book value of the leased plant or machinery immediately before the termination,

• “Original Consideration” means the consideration payable to S for [F8 granting B rights over the plant or machinery], and

• “Original Book Value” means the net book value of the leased plant or machinery at the beginning of the leaseback.

[F9 (5) If the use mentioned in section 228A(2)(b) includes use by a person (other than B) who is connected with S, this section applies in relation to that person as it applies in relation to S.]

Textual Amendments

F4 S. 228B heading substituted (with effect in accordance with Sch. 20 para. 12(12) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 12(3)(d)

F5 Word in s. 228B heading inserted (with effect in accordance with Sch. 20 para. 13(4) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 13(3)

F6 Word in s. 228B(1) substituted (with effect in accordance with Sch. 20 para. 12(12) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 12(3)(a)

F7 Words in s. 228B(2) substituted (with effect in accordance with Sch. 20 para. 12(12) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 12(3)(b)

F8 Words in s. 228B(4) substituted (with effect in accordance with Sch. 20 para. 12(12) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 12(3)(c)

F9 S. 228B(5) inserted (with effect in accordance with Sch. 20 para. 13(4) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 13(2)

228C [F10 S's income or profits: termination of leaseback] U.K.

(1) Subsection (2) applies where the leaseback terminates.

(2) For the purpose of the calculation of income tax or corporation tax, the income or profits of [F11 S] from the relevant qualifying activity for the period in which the termination occurs shall be increased by an amount calculated in accordance with subsection (3).

(3) The calculation is—

where—

• [F12 “Original Consideration” means the consideration payable to S for granting B rights over the plant or machinery,]

• “Current Book Value” means the net book value of the leased plant or machinery immediately before the termination, and

• “Original Book Value” means the net book value of the leased plant or machinery at the beginning of the leaseback.

(4) In this section “relevant qualifying activity” means the qualifying activity for the purposes of which the leased plant or machinery was used immediately before the termination.

(5) Section 228B has no effect on the treatment for the purposes of income tax or corporation tax of amounts received by way of refund on the termination of a leaseback of amounts payable under it.

(6) In subsection (5), “amounts received by way of refund” includes any amount that would be so received in respect of [F13 S's] interest under the leaseback if any amounts due to [F14 B (or, where appropriate, an assignee of B)] under the leaseback were disregarded.

Textual Amendments

F10 S. 228 heading substituted (with effect in accordance with Sch. 20 para. 12(12) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 12(4)(d)

F11 Word in s. 228C(2) substituted (with effect in accordance with Sch. 20 para. 12(12) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 12(4)(a)

F12 Definition and word in formula in s. 228C(3) substituted (with effect in accordance with Sch. 20 para. 12(12) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 12(4)(b)

F13 Word in s. 228C(6) substituted (with effect in accordance with Sch. 20 para. 12(12) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 12(4)(c)

F14 Words in s. 228C(6) substituted (with effect in accordance with Sch. 20 para. 12(12) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 12(4)(c)

F15 228D Lessor’s income or profits U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F15 S. 228D omitted (with effect in accordance with Sch. 20 para. 12(12) of the amending Act) by virtue of Finance Act 2008 (c. 9), Sch. 20 para. 12(5)(a)

F16 228E Lessor’s income or profits: termination of leaseback U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F16 S. 228E omitted (with effect in accordance with Sch. 20 para. 12(12) of the amending Act) by virtue of Finance Act 2008 (c. 9), Sch. 20 para. 12(5)(b)

F17 228F Lease and finance leaseback U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F17 S. 228F omitted (with effect in accordance with Sch. 20 para. 12(12) of the amending Act) by virtue of Finance Act 2008 (c. 9), Sch. 20 para. 12(5)(c)

228G [F18 Leaseback not accounted for as finance lease in S's accounts] U.K.

(1) Sections 228B and 228C are subject to this section in their application in relation to a leaseback that is not accounted for as a finance lease in the accounts of [F19 S].

(2) Subsection (3) applies where the leaseback is accounted for as a finance lease in the accounts of a person connected with [F20 S]; and in that subsection “ relevant calculation ” means the calculation of—

(a) the permitted maximum for the purposes of section 228B, or

(b) the amount by which the income or profits of [F20 S] are to be increased in accordance with section 228C.

(3) Where an amount that falls to be used for the purposes of a relevant calculation—

(a) cannot be ascertained by reference to [F21 S's] accounts because the leaseback is not accounted for as a finance lease in those accounts, but

(b) can be ascertained by reference to the connected person’s accounts for one or more periods,

that amount as ascertained by reference to the connected person’s accounts shall be used for the purposes of the relevant calculation.

(4) Subsections (5) and (6) apply in a case where the leaseback is not accounted for as a finance lease in the accounts of a person connected with [F22 S].

(5) Sections 228B and 228C do not apply in relation to the leaseback.

(6) If the term of the leaseback begins on or after 18 May 2004 then, for the purposes of income tax or corporation tax, the income or profits of [F23 S] from the relevant qualifying activity for the period of account during which the term of the leaseback begins shall be [F24 increased by the consideration payable to S for granting B rights over the plant or machinery.]

(7) For the purposes of this section the leaseback is accounted for as a finance lease in a person’s accounts if—

(a) the leaseback falls, under generally accepted accounting practice, to be treated in that person’s accounts as a finance lease or loan, or

(b) in a case where the leaseback is comprised in other arrangements, those arrangements fall, under generally accepted accounting practice, to be so treated.

Textual Amendments

F18 S. 228G heading substituted (with effect in accordance with Sch. 20 para. 12(12) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 12(6)(f)

F19 Word in s. 228G(1) substituted (with effect in accordance with Sch. 20 para. 12(12) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 12(6)(a)

F20 Word in s. 228G(2) substituted (with effect in accordance with Sch. 20 para. 12(12) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 12(6)(b)

F21 Word in s. 228G(3) substituted (with effect in accordance with Sch. 20 para. 12(12) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 12(6)(c)

F22 Word in s. 228G(4) substituted (with effect in accordance with Sch. 20 para. 12(12) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 12(6)(d)

F23 Word in s. 228G(6) substituted (with effect in accordance with Sch. 20 para. 12(12) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 12(6)(e)

F24 Words in s. 228G(6) substituted (with effect in accordance with Sch. 20 para. 12(12) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 12(6)(e)

228H Sections 228A to 228G: supplementary U.K.

(1) In sections 228A to 228G—

• [F25 “consideration” does not include rentals;]

• F26 ...

• the “ net book value ”of leased plant or machinery means the book value of the plant or machinery having regard to any relevant entry in [F27 S's] accounts, but—

  (a)

  also having regard to depreciation up to the time in question, and

  (b)

  disregarding any revaluation gains or losses and any impairments;

• F28 ...

• [F29 “S” does not include an assignee of S;]

• “ termination ” in relation to a leaseback includes F30 ...—

  (a)

  the assignment of [F31 S's] interest,

  (b)

  the making of any arrangements (apart from an assignment of [F31 S's] interest) under which a person other than [F31 S] becomes liable to make some or all payments under the leaseback, and

  (c)

  a variation as a result of which the leaseback ceases to be a finance lease.

[F32 (1A) For the purposes of sections 228A to 228G, references to consideration given (or payable to S) for the grant to B of rights over the plant or machinery do not include—

(a) rentals payable under that grant, or

(b) any relevant capital payment (within the meaning of [F33 section 890 of CTA 2010] or section 809ZA of ITA 2007) to which either of those sections applies.

(1B) In relation to a case where some but not all of the consideration mentioned in subsection (1A) falls within paragraph (b) of that subsection, sections 228B to 228G or section 228J have effect subject to such modifications as are just and reasonable.]

(2) In a case where accounts drawn up are not correct accounts, or no accounts are drawn up—

(a) the provisions of sections 228A to 228G apply as if correct accounts had been drawn up, and

(b) amounts referred to in any of those sections as shown in accounts are those that would have been shown in correct accounts.

(3) In a case where accounts are drawn up in reliance upon amounts derived from an earlier period of account for which correct accounts were not drawn up, or no accounts were drawn up, amounts referred to in sections 228A to 228G as shown in the accounts for the later period are those that would have been shown if correct accounts had been drawn up for the earlier period.

(4) In subsections (2) and (3) “ correct accounts ” means accounts drawn up in accordance with generally accepted accounting practice.

Textual Amendments

F25 Words in s. 228H(1) inserted (with effect in accordance with Sch. 20 para. 12(12) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 12(8)(a)

F26 Words in s. 228H(1) omitted (with effect in accordance with Sch. 20 para. 12(12) of the amending Act) by virtue of Finance Act 2008 (c. 9), Sch. 20 para. 12(8)(b)

F27 Word in s. 228H(1) substituted (with effect in accordance with Sch. 20 para. 12(12) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 12(8)(c)

F28 Words in s. 228H(1) omitted (with effect in accordance with Sch. 20 para. 12(12) of the amending Act) by virtue of Finance Act 2008 (c. 9), Sch. 20 para. 12(8)(d)

F29 Words in s. 228H(1) inserted (with effect in accordance with Sch. 20 para. 12(12) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 12(8)(e)

F30 Words in s. 228H(1) omitted (with effect in accordance with Sch. 20 para. 12(12) of the amending Act) by virtue of Finance Act 2008 (c. 9), Sch. 20 para. 12(8)(f)

F31 Word in s. 228H(1) substituted (with effect in accordance with Sch. 20 para. 12(12) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 12(8)(f)

F32 S. 228H(1A)(1B) inserted (with effect in accordance with Sch. 20 para. 12(12) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 12(9)

F33 Words in s. 228H(1A)(b) substituted (1.4.2010) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 345 (with Sch. 2)

228J Plant or machinery subject to further operating lease U.K.

(1) This section applies where—

(a) plant or machinery is the subject of—

(i) a sale and finance leaseback, or

(ii) a lease and finance leaseback, and

(b) some or all of the plant or machinery becomes, while the subject of the leaseback, also the subject of a lease in relation to which the following conditions are met—

(i) the term of the lease begins on or after 18 May 2004;

(ii) S, or a person connected with S, is the lessee under the lease;

(iii) the lease is not accounted for as a finance lease in the accounts of the lessee.

(2) For the purpose of income tax or corporation tax, in calculating the lessee’s income or profits for a period of account the amount deducted in respect of amounts payable under the operating lease shall not exceed the relevant amount.

(3) Subsections (4) and (5) apply in relation to the calculation of the lessor’s income or profits for a period of account for the purpose of income tax or corporation tax.

(4) Where—

(a) an amount receivable in respect of the lessor’s interest under the operating lease falls to be taken into account in that calculation, and

(b) that amount is reduced by an amount due to the lessee under the operating lease,

that reduction shall be disregarded when taking the amount receivable into account.

(5) The amounts receivable in respect of the lessor’s interest under the operating lease that fall to be taken into account in that calculation may be disregarded to the extent that they exceed the relevant amount (whether or not subsection (4) applies).

(6) Where only some of the plant or machinery is the subject of the operating lease, subsections (2) to (5) shall apply subject to such apportionments as may be just and reasonable.

(7) For the purposes of this section a lease is accounted for as a finance lease in a person’s accounts if—

[F34 (a) the lease—

(i) falls, under generally accepted accounting practice, to be treated in that person's accounts as a finance lease or loan, or

(ii) if that person is a lessee under a right-of-use lease, would fall to be treated in that person's accounts as a finance lease were that person required under generally accepted accounting practice to determine whether the lease falls to be so treated,]

(b) in a case where the lease is comprised in other arrangements, those arrangements [F35 —

(i) fall, under generally accepted accounting practice, to be treated as a finance lease or loan, or

(ii) if that person is a lessee under a right-of-use lease, would fall to be treated in that person's accounts as a finance lease were that person required under generally accepted accounting practice to determine whether the arrangements fall to be so treated.]

(8) In this section—

• “ lease and finance leaseback ” has the meaning given in [F36 section 228A];

• “ lessee ” means the lessee under the operating lease;

• “ lessor ” means the lessor under the operating lease;

• “ operating lease ” means the lease referred to in subsection (1)(b);

• “ relevant amount ” means an amount equal to the permitted maximum under section 228B as it applies in relation to the leaseback. ]

Textual Amendments

F34 S. 228J(7)(a) substituted (with effect in accordance with Sch. 14 para. 6(1) of the amending Act) by Finance Act 2019 (c. 1), Sch. 14 para. 1(6)(a)

F35 Words in s. 228J(7)(b) substituted (with effect in accordance with Sch. 14 para. 6(1) of the amending Act) by Finance Act 2019 (c. 1), Sch. 14 para. 1(6)(b)

F36 Words in s. 228J(8) substituted (with effect in accordance with Sch. 20 para. 12(12) of the amending Act) by Finance Act 2008 (c. 9), Sch. 20 para. 12(10)