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HMRC internal manual

Business Leasing Manual

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HM Revenue & Customs
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Sale of lessor companies and similar arrangements: anti-avoidance: relationship of Schedule 10 with CAA01/S228K (FA06/SCH10/PARA40)

This guidance covers transactions where the relevant day falls before 13 November 2008. Paragraph 40 was repealed with effect for transactions where the relevant day falls on or after 13 November 2008 it has not therefore been rewritten into CTA 2010.

Paragraph 40 deals with the exceptional situation where on the same day there is a qualifying change of ownership or change of interest in a business and a sale of an item of plant or machinery subject to a lease without a sale of the lease income. The paragraph prevents a double charge when these two events coincide by taking the item of plant or machinery that is subject to the disposal out of the calculation of the income and expense amount.

Example 1

A Ltd carries on a business of leasing plant or machinery and there is a qualifying change of ownership on 10 December 2007. It has three items of plant or machinery:

  Balance sheet value TWDV
     
A train 50m 10m
A plane 40m 5m
A yacht 10m 1m

A Ltd sells the train on 10 December but retains the income stream. This sale is caught by section 228K CAA 2001, seeCA23290.

The calculation of the income amount for the purposes of Schedule 10 FA 2006 is adjusted to exclude the values for the train:

PM = 40m + 10m = 50m
     
- TWDV = 5m + 1m = 6m
    = 44m

The income amount is therefore reduced to £44m.

Example 2

If as a consequence of the exclusion of the plant that is sold there is no income or expense amount then the effect of Schedule 10 is cancelled.

B Ltd carries on a business of leasing plant or machinery and there is a qualifying change of ownership on 10 December 2007. It has three items of plant or machinery:

  Balance sheet value TWDV
     
A train 50m 10m
A plane 40m 38m
A yacht 10m 8m

B Ltd sells the train on 10 December but retains the income stream. This sale is caught by section 228K CAA 2001. See CA23290.

The calculation of the income amount for the purposes of Schedule 10 FA 2006 is adjusted to exclude the values for the train:

PM = 40m + 5m = 45m
     
- TWDV = 38m + 8m = 46m
    = -1m

The income amount is nil and so the company has no income or expense amount and is not required to bring its accounting period to a close. The effect of Schedule 10 is cancelled.

These provisions apply to disposals made after 2 June 2006 and before 13 November 2008. If there is a qualifying change of ownership or change of interest in a business and a disposal of an item of plant or machinery subject to a lease without a sale of the lease income on one day and that day is before 2 June 2006 the effects of the Schedule could be cancelled even when there was still an amount of income or expense. Such transactions would be very unusual and all of the facts should be examined carefully to establish that this treatment is appropriate.