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HMRC internal manual

Business Leasing Manual

HM Revenue & Customs
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Calculating the income amount: Quantifying the income amount: example

In this example, A Ltd is a lessor company that owns a number of printing presses which are leased out under operating leases (and so feature as fixed assets in the balance sheet).

On 31 December 2019

  • all the shares in A Ltd are sold by A Holdings Ltd.
  • A Ltd acquires

    • a train from group company B Ltd;
    • a lathe from an unconnected party; and
    • a ship which it acquires when it succeeds to a leasing trade previously carried on by a member of the acquiring group.

The PM figure is primarily derived from the start of the day and, without adjustment, would reflect only the printing presses.

The TWDV is primarily derived from the end of the day and, without the adjustment, would reflect the printing presses, the train, the ship and the lathe.

The adjustments bring these figures into line:

  • Section 388 brings the train into the PM figure - it is transferred to A Ltd on the relevant day from a company that is an associated company at the start of the day.
  • Section 403(3)(a) removes expenditure on the lathe from the TWDV figure - it is acquired by A Ltd on the relevant day and is not acquired from an associated company.
  • Section 403(3)(b) removes the ship from the TWDV figure. Expenditure is incurred on the day but is attributable to plant or machinery that the company is treated as acquiring before that day as a consequence of section 948 CTA2010.

The adjusted PM and TWDV figures now include the printing presses and the train but not the lathe or the ship.

The adjustments ensure that the income amount recoups the timing benefit that the selling group has enjoyed as a consequence of a claim to capital allowances. It therefore takes into consideration all assets that leave the selling group as a consequence of the sale of the lessor company. There is no need to adjust for the lathe because it has just been acquired from an unconnected party and the group that owns A Ltd will not have benefited from any capital allowances.