“Business of leasing plant or machinery”
387“Business of leasing plant or machinery”
(1)This section determines for the purposes of this Chapter whether, on any day (“the relevant day”), a company (“the relevant company”) carries on a business of leasing plant or machinery.
(2)A business carried on by the relevant company is a business of leasing plant or machinery on the relevant day if condition A or B is met.
(3)Condition A is that at least half of the relevant plant or machinery value relates to qualifying leased plant or machinery.
(4)Subsection (3) is supplemented by section 388.
(5)Condition B is that at least half of the relevant company’s income in the period of 12 months ending with the relevant day derives from qualifying leased plant or machinery.
(6)Subsection (5) is supplemented by section 391.
(7)For the purposes of this Chapter, plant or machinery is “qualifying leased plant or machinery”, in relation to a company, if—
(a)expenditure is incurred (or treated as incurred) by the company on the provision of the plant or machinery wholly or partly for the purposes of the business,
(b)the company would be (or would at any time have been) entitled, on the assumptions in subsection (8), to an allowance under Part 2 of CAA 2001 in respect of that expenditure, and
(c)at any time in the period of 12 months ending with the relevant day the plant or machinery has been subject to a plant or machinery lease which is not an excluded lease of background plant or machinery for a building (see section 437(3)).
(8)The assumptions are—
(a)that sections 34A and 70A of CAA 2001 (lessees, and not lessors, under long funding leases to be entitled to capital allowances) are ignored, and
(b)that any claim that could be made for an allowance under Part 2 of that Act is made.
388“Relevant plant or machinery value” for condition A in section 387
(1)This section applies for the purposes of condition A in section 387.
(2)The relevant plant or machinery value is the sum of the amounts in subsection (3), but subject to section 390 (relevant plant or machinery value where relevant company lessee under long funding lease etc).
(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 relevant company 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 relevant company 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 an associated company drawn up as at the start of the relevant day.
(5)This section is supplemented by section 389.
389Provision supplementing section 388
(1)For the purposes of section 388 and this section the amounts shown in the appropriate balance sheet of 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 388 and this section any reference to any amount shown in the appropriate balance sheet of 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 company.
(5)The assumptions are—
(a)that the balance sheet is drawn up in accordance with generally accepted accounting practice, and
(b)that, if the company 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 market 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 company 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 company on that date.
390Relevant plant or machinery value where relevant company lessee under long funding lease etc
(1)Any amount included in the amounts mentioned in section 388(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 market 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 relevant company from an associated company on the relevant day and condition A or B is met at the end of that day.
(4)Condition A is that the relevant company 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 relevant company is treated as the owner of the plant or machinery under section 67 of CAA 2001 (hire purchase and similar contracts).
391Relevant company’s income for condition B in section 387
(1)This section applies for the purposes of condition B in section 387.
(2)The reference to the relevant company’s income is to its income as calculated for corporation tax purposes.
(3)Any apportionment necessary to determine the amount of the relevant company’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 qualifying leased plant or machinery is to be determined on a just and reasonable basis.