C1C2C3C4C5F1PART 7ZARestrictions on obtaining certain deductions
Pt. 7ZA modified (retrospective to 29.10.2018) by Finance Act 2020 (c. 14), Sch. 4 para. 46
Pt. 7ZA modified by 1992 c. 12, Sch. 7A para. 6(1C) (as inserted (with effect in relation to accounting periods beginning on or after 1.4.2020) by Finance Act 2020 (c. 14), Sch. 4 paras. 18(4), 42 (with Sch. 4 paras. 43-46))
Pt. 7ZA applied (with modifications) (with effect in accordance with Sch. 4 para. 43(1) of the amending Act) by Finance Act 2020 (c. 14), Sch. 4 para. 44(4)
Pt. 7ZA applied (with modifications) (with application in accordance with Sch. 4 para. 45(1)(2) of the amending Act) by Finance Act 2020 (c. 14), Sch. 4 para. 45(4)
Pt. 7ZA disapplied (24.2.2022) by Finance Act 2022 (c. 3), Sch. 2 para. 21
Deductions allowance
269ZYMeaning of “relevant reversal credit”
1
For the purposes of section 269ZX a “relevant reversal credit” is a credit, or other income, brought into account in respect of the relevant reversal (see subsections (3) and (5)) of F5—
a
a relevant onerous lease provision (see subsection (2)), or
b
a relevant right-of-use asset impairment loss (see subsection (2A)).
2
A provision in the accounts of a company (“C”) is a “relevant onerous lease provision” if—
a
the provision relates to a lease of land under which C is the tenant (and “L” is the landlord),
b
the provision is required, for F6accounting purposes, as a provision for an onerous lease, and
c
the lease was entered into at arm's length.
F32A
A loss in the accounts of a company (“C”) is a “relevant right-of-use asset impairment loss” if—
a
the loss relates to an asset (a “right-of-use asset”) recognised in the accounts to reflect C’s right to use land as the tenant under a lease (where “L” is the landlord),
b
the loss is required to be recognised, for accounting purposes, because the right-of-use asset is impaired, and
c
the lease was entered into at arm’s length.
3
The reversal (in whole or in part) of a relevant onerous lease provision F7or a relevant right-of-use asset impairment loss is a “relevant reversal” if—
a
the reversal is required for F8accounting purposes as a result of an arrangement (“C's arrangement”) made at arm's length under which C's obligations under the lease are varied or cancelled,
b
subsection (4) does not apply, and
c
at least one of conditions X, Y and Z in subsection (7) is met.
4
This subsection applies if—
a
C and L are connected at the time when C's arrangement is made, or
b
the landlord who granted the lease (whether that was L or another person) and the tenant to whom it was granted (whether that was C or another person) were connected at the time when the lease was granted.
5
The reversal (in whole or in part) of a relevant onerous lease provision F9or a relevant right-of-use asset impairment loss is a “relevant reversal” if—
a
the lease has been granted out of a lease (“the superior lease”),
b
L and C are members of the same group of companies,
c
the reversal would be a relevant reversal by virtue of subsection (3) if the condition in subsection (3)(b) (lack of connection between C and L) were met,
d
the terms of C's arrangement substantially reflect those of an arrangement (“L's arrangement”) made at arm's length under which L's obligations under the superior lease are varied or cancelled, and
e
subsection (6) does not apply.
6
This subsection applies if—
a
at the time when L's arrangement is made, the landlord under the superior lease (“S”) is connected with L or C, or
b
the landlord who granted the superior lease (whether that is S or another person) and the tenant to whom it was granted (whether that was L or another person) were connected at the time when that lease was granted.
7
The conditions mentioned in subsection (3)(c) are as follows.
Condition X is that—
- a
it is reasonable to suppose that immediately before C's arrangement was made there was a material risk that at some time within the next 12 months C would be unable to pay its debts as they fell due, and
- b
the sole or main purpose of C's arrangement was to avert that risk (whether directly or indirectly).
Debts due to a person connected with C are to be regarded as not being debts for the purposes of paragraph (a).
- a
Condition Y is that C is in insolvent administration.
Condition Z is that C's arrangement is, or is part of, a statutory insolvency arrangement.
8
In this section “statutory insolvency arrangement” means—
a
a voluntary arrangement that has taken effect under, or as a result of, the Insolvency Act 1986 or the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/ 2405 (N.I. 19)),
b
a compromise or arrangement that has taken effect under Part 26 F2or 26A of the Companies Act 2006, or
c
an arrangement or compromise of a kind corresponding to any of those mentioned in paragraph (a) or (b) that has taken effect under, or as a result of, the law of a country or territory outside the United Kingdom,
(and for the purposes of this section an arrangement which is, or is part of, a statutory insolvency arrangement is taken to be “made” when the statutory insolvency arrangement takes effect).
9
For the purposes of this section a company in administration is in insolvent administration if—
a
it entered administration under Schedule B1 to the Insolvency Act 1986, or Schedule B1 to the Insolvency (Northern Ireland) Order 1989, at a time when its assets were insufficient for the payment of its debts and other liabilities and the expenses of the administration, or
a
under the law of a country or territory outside the United Kingdom circumstances corresponding to those mentioned in paragraph (a) exist.
F49A
For the purposes of subsection (2A)(b), where a company’s accounts previously included provision for an onerous lease, any right-of-use asset included in the accounts in respect of that lease is to be treated as impaired, unless there has been a material change of circumstances.
10
In the application of subsection (5) to Scotland, the reference to the lease having been granted out of the superior lease is to the lease being a sublease of land subject to the superior lease.
11
Section 152 (groups of companies) applies for the purposes of this section as it applies for the purposes of Part 5.
12
For the purposes of this section any question whether a person is connected with another is to be determined in accordance with section 1122.
Pt. 7ZA inserted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 16