Part 20

Tax avoidance involving leasing plant or machinery
Chapter 2

Capital payments in respect of leases treated as income

Meaning of “capital payment”, “relevant capital payment” etc
893
1
This section gives the meaning of “capital payment”, “relevant capital payment” and references to payment for the purposes of this Chapter.
2
“Capital payment” means any payment except one which, if made to the lessor—
a
would fall to be included in a calculation of the lessor's income for corporation tax purposes, or
b
would so fall but for section 360 (lessor under long funding finance lease: rental earnings).
3
A capital payment, in relation to a lease or relevant arrangement, is “relevant” if condition A or B is met (but this is subject to subsections (6) and (7)).
4
Condition A is that the capital payment is payable (or paid), directly or indirectly, by or on behalf of the lessee to the lessor or another person on the lessor's behalf in connection with—
a
the grant, assignment, novation or termination of the lease, or
b
any provision of the lease or relevant arrangement (including the variation or waiver of any such provision).
5
Condition B is that rentals payable under the lease are less than, or payable later than, they might reasonably be expected to be if there were no obligation to make the capital payment and it were not made.
6
A capital payment is not “relevant” so far as it—
a
reduces the amount of expenditure incurred by the lessor for the purposes of CAA 2001 in respect of the plant or machinery in question or would reduce it but for section 536 of CAA 2001 (contributions not made by public bodies and not eligible for tax relief), or
b
is compensation for loss resulting from damage to, or damage caused by, the plant or machinery in question.
7
If—
a
a capital payment is an initial payment under a long funding lease for the purposes of Part 2 of CAA 2001 (see section 70YI of that Act), and
b
under section 61 of that Act (disposal events and disposal values) the commencement of the term of the lease (as defined in section 70YI of that Act) is an event that requires the lessor to bring a disposal value into account,
the capital payment is only “relevant” so far as it exceeds the amount that is the disposal value for the purposes of Part 2 of that Act.
8
References to payment include the provision of value by any means other than the making of a payment.
9
Accordingly—
a
references to the making of a payment include the passing of value by any other means, and
b
references to the amount of the payment include the value passed.