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HMRC internal manual

Business Leasing Manual

HM Revenue & Customs
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Sale of lessor companies and similar arrangements: business of leasing plant or machinery: condition B - income from a leasing business

Section 391 CTA2010

The income of a company is its income as calculated for corporation tax purposes for the 12 month period ending on the relevant day. This is the income figure used to calculate the corporation tax profit.

Because the relevant day may not coincide with the end of a 12 month period of account this paragraph contains rules to enable the income of more than one accounting period to be apportioned to give the income over the preceding 12 month period. The legislation requires apportionment on a time basis but allows the company to adopt a different method if this gives a more sensible result.

Example - apportionment of income

A Ltd draws up its accounts to 31 December. On 30 September 2009 A Ltd is sold by its parent. Computations for the year ending 31 December 2008 show income from:

Investments in shares 80,000  
Loans to associated companies 100,000  

Computations for the year ending 31 December 2009 show income from:

Investments in shares 50,000  
Loans to associated companies 120,000  
Lease of an oilrig 2,000,000  

The company appears to be carrying on a business of leasing plant or machinery in the year ended 31 December 2009.

A straight time basis apportionment would give 3/12 of the 31 December 2008 figures and 9/12 of the 31 December 2009 figures:

Investments in shares 57,500  
Loans to associated companies 115,000  
Lease of an oilrig 1,500,000  
Total income 1,672500  

Of the total income £1,500,000 is leasing income. On the basis of this calculation the company is a leasing company.

However, further enquiries reveal that the company bought the oilrig in December 2009. It would be unreasonable to include any part of the oilrig leasing income in the calculation of the income figure for the year ended 30 September 2009.

A balance sheet drawn up at the start of the relevant day, 30 September 2009 would similarly exclude the oilrig and the company would similarly not meet Condition A. The company does not meet either of the tests and is not carrying on a business of leasing plant or machinery on the relevant day.