Finance Act 2008

(809ZA) (1) This section applies if— (a) there is an unconditional obligation, under a lease of plant or machinery or a relevant arrangement, to make a relevant capital payment (at any time), or (b) a relevant capital payment is made under such a lease or arrangement otherwise than in pursuance of such an obligation. (2) The lessor is treated for income tax purposes as receiving income attributable to the lease of an amount equal to the amount of the capital payment. (3) The income is treated— (a) if subsection (1)(a) applies, as income for the period of account in which there is first an obligation of the kind mentioned there, and (b) if subsection (1)(b) applies, as income for the period of account in which the payment is made. (809ZB) (1) The expressions used in section 809ZA and this section are to be interpreted as follows. (2) “Capital payment” means any payment except one which, if made to the lessor— (a) would fall to be included in a calculation of the lessor's income for income tax purposes, or (b) would fall to be included in such a calculation but for section 148A of ITTOIA 2005 (rental earnings under long funding finance lease). (3) “Lease” includes— (a) a licence, and (b) the letting of a ship or aircraft on charter or the letting of any other asset on hire, and “lessor” and “lessee” are to be read accordingly. (4) “Lease of plant or machinery” includes a lease of plant or machinery and other property but does not include— (a) a lease where the income attributable to the lease received by the lessor (if any) would be chargeable to tax under Part 3 of ITTOIA 2005 (property income), or (b) a lease of plant or machinery where the lessor has incurred what would (but for section 34A of CAA 2001) be qualifying expenditure (within the meaning of Part 2 of that Act) on the plant or machinery. (5) “Relevant arrangement” means any agreement or arrangement relating to a lease of plant or machinery, including one made before the lease is entered into or after it has ended (and, accordingly, “lessor” and lessee” include prospective and former lessors and lessees). (6) A capital payment, in relation to a lease or relevant arrangement, is “relevant” if condition A or B is met (but this is subject to subsection (9)). (7) Condition A is that the capital payment is payable (or paid), directly or indirectly, by (or on behalf of) the lessee to (or on behalf of) the lessor in connection with— (a) the grant, assignment, novation or termination of the lease, or (b) any provision of the lease or relevant arrangement (including the variation or waiver of any such provision). (8) Condition B is that rentals payable under the lease are less than (or payable later than) they might reasonably be expected to be if there were no obligation to make the capital payment (and the capital payment were not made). (9) A capital payment is not “relevant” if or to the extent that— (a) the capital payment reduces (or would but for section 536 of CAA 2001 reduce) the amount of expenditure incurred by the lessor for the purposes of CAA 2001 in respect of the plant or machinery in question, (b) the capital payment is compensation for loss resulting from damage to, or damage caused by, the plant or machinery in question, or (c) the capital payment would fall (or falls) to be brought into account by the lessor as a disposal receipt within the meaning of Part 2 of CAA 2001 (see section 60(1) of that Act). (10) References to payment include the provision of value by any means other than the making of a payment, and accordingly— (a) references to the making of a payment include the passing of value (by any other means), and (b) references to the amount of the payment include the value passed. (809ZC) (1) This section applies if section 809ZA applies in relation to a lease of plant or machinery and other property (see section 809ZB(4)). (2) The relevant capital payment is to be apportioned, on a just and reasonable basis, between— (a) the plant and machinery, and (b) the other property. (3) If the income (if any) received by the lessor that is attributable to any of the plant or machinery is chargeable to tax under Part 3 of ITTOIA 2005 (property income), treat that plant or machinery as falling within subsection (2)(b) (and not subsection (2)(a)). (4) Section 809ZA(2) has effect as if the reference to the amount of the capital payment were to such amount as is apportioned under subsection (2) in respect of the plant or machinery within subsection (2)(a). (809ZD) (1) This section applies for income tax purposes if— (a) section 809ZA applies by virtue of subsection (1)(a) of that section, and (b) at any time, the lessor reasonably expects that the relevant capital payment will not be paid (or will not be paid in full). (2) For the purposes of calculating the profits of the lessor, a deduction is allowed for the period of account which includes that time. (3) The amount of the deduction is equal to the amount reasonably expected not to be paid. (4) No other deduction is allowed in respect of the matters mentioned in subsection (1).

• (2) The amendment made by sub-paragraph (1) has effect in relation to—

• (a) cases where there is first an obligation of the kind mentioned in subsection (1)(a) of section 809ZA of ITA 2007 on or after 13 December 2007, and

• (b) capital payments within subsection (1)(b) of that section made on or after that date.

• (3) In relation to a case where the condition in paragraph (a) or (b) of section 809ZA(1) of ITA 2007 was met before 12 March 2008, sections 809ZA to 809ZF of that Act have effect as if—

• (a) for section 809ZF(3) to (5) there were substituted—

(3) “Lease of plant or machinery”— (a) includes an equipment lease within the meaning of Chapter 14 of Part 2 of CAA 2001, but (b) subject to that, does not include a lease of plant or machinery and other property.

, and

• (b) section 809ZC were omitted.

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In section 785A of ICTA (rent factoring of leases of plant or machinery), after subsection (5A) insert—

(5B) This section does not apply in relation to a relevant capital payment to which section 785B below or section 809ZA of ITA 2007 applies; and “relevant capital payment” here has the same meaning as in that section.

Disposal events: grant of long funding lease

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Deemed disposals: plant or machinery used under long funding lease

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Plant or machinery subject to a sale and finance leaseback or lease and finance leaseback

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• (1) Part 2 of CAA 2001 (plant and machinery allowances) is amended as follows.

• (2) In section 13(5) (use for qualifying activity of plant or machinery provided for other purposes), omit “or 224”.

• (3) In section 52(5) (first-year allowances), omit “, 223”.

• (4) In section 57(3) (available qualifying expenditure), omit “224(1),”.

• (5) In section 66 (provisions referred to in section 60(1)(b)), omit the entry relating to section 222.

• (6) In section 70I (meaning of “short lease”), after subsection (9) insert—

(10) Where plant or machinery is the subject of a sale and finance leaseback (as defined in section 221), any finance lease of a kind mentioned in section 221(1)(c) is not a short lease (if it otherwise would be). (11) But, if the conditions set out in section 227(2) are met, B and S (within the meaning of section 221) may make an election the effect of which is that— (a) subsection (10) above does not apply, (b) section 228(2) and (3) apply in relation to B (but this does not prevent section 225 from applying), and (c) section 228(5) applies in relation to S. (12) Subsections (4) to (6) of section 227 apply in relation to elections under this section as they apply in relation to elections under that section.

• (7) In section 89(3)(b) (disposal to connected person), for “sections 222 to” substitute “ section ”.

• (8) In section 217 (no first-year allowance for B's expenditure), for subsection (3) substitute—

(3) This section does not apply if plant or machinery is the subject of a sale and finance leaseback (as defined in section 221).

• (9) In section 218 (restriction on B's qualifying expenditure), for subsection (4) substitute—

(4) This section does not apply if plant or machinery is the subject of a sale and finance leaseback (as defined in section 221), but see section 225.

• (10) In section 219(1) (meaning of “finance lease”), omit “and which are not a long funding lease in the case of the lessor”.

• (11) In section 221(1) (meaning of “sale and finance leaseback”), for “sections 222 to 228” substitute “ section 225 ”.

• (12) Omit—

• (a) section 222 (disposal value restricted),

• (b) section 223 (no first-year allowance for B's expenditure),

• (c) section 224 (restriction on B's qualifying expenditure), and

• (d) section 226 (qualifying expenditure limited in subsequent transactions).

• (13) In section 227 (circumstances in which election may be made)—

• (a) in subsection (1)(b), omit sub-paragraph (ii) (and the “or” before it), and

• (b) in subsection (2)(c), for “217, 218, 223 or 224” substitute “ 217 or 218 ”,

and the heading before that section accordingly becomes “ Sale and leaseback: election for special treatment ”.

• (14) In section 228 (effect of election: relaxation of restriction on B's qualifying expenditure, etc)—

• (a) in subsection (1), omit “or 224”, and

• (b) omit subsection (4).

• (15) In section 230(2) (exception for manufacturers and suppliers), for “sections 222 to” substitute “ section ”.

• (16) In section 241(1)(b) (no first-year allowance in respect of additional VAT liability), omit “or 223(1)”.

• (17) Omit section 243 (restriction on B's qualifying expenditure: sale and finance leaseback).

• (18) In section 774E(6) of ICTA (structured finance arrangements: exceptions), omit the second sentence.

• (19) The amendments made by this paragraph have effect in the case of plant or machinery which is the subject of a sale and finance leaseback (as defined in section 221 of CAA 2001) where the date of the transaction (within the meaning of that section) is on or after 9 October 2007.

• (20) In the case of plant or machinery which is the subject of a sale and finance leaseback (as defined in section 221 of CAA 2001) where the date of the transaction (within the meaning of that section) is before 12 March 2008, section 70I(10) of CAA 2001 has effect as if for “any finance lease of a kind” there were substituted “ the finance lease ”.

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• (1) In section 70I of CAA 2001 (meaning of “short lease”), after subsection (9) insert—

(9A) Where plant or machinery is the subject of a lease and finance leaseback (as defined in section 228A)— (a) the finance lease mentioned in section 228A(2)(c), and (b) any other finance lease forming part of the arrangements for the lease and finance leaseback (except the lease referred to in section 228A(2)(a)), is not a short lease (if it otherwise would be).

• (2) The amendment made by sub-paragraph (1) has effect in the case of plant or machinery which is the subject of a lease and finance leaseback (as defined in section 228A of CAA 2001) where the date of the transaction mentioned in subsection (2)(a) of that section is on or after 12 March 2008.

Restriction on lessee’s right to elect that rules for non-long funding leases apply

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• (1) In section 70H of CAA 2001 (lessee: requirement for tax return treating lease as long funding lease), after subsection (1) insert—

(1A) Subsection (1) does not apply in respect of a lease of plant or machinery (“lease A”) if, at any time in the relevant period— (a) the lessee is the lessor of a lease of any of that plant or machinery (“lease B”), and (b) lease B is a long funding lease. (1B) In subsection (1A) “the relevant period” means the period— (a) beginning with the inception of lease A, and (b) ending with the making of the tax return for the initial period (or, if that return is amended, the making of the last amendment).

• (2) The amendment made by sub-paragraph (1) has effect in relation to leases entered into on or after 13 December 2007.

Lessors under long funding leases of plant or machinery

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• (1) Chapter 10A of Part 2 of ITTOIA 2005 (corresponding income tax rules) is amended as follows.

• (2) After section 148F insert—

(148FA) (1) Sections 148A to 148F do not apply in the case of a person carrying on a trade who is or has been the lessor of any plant or machinery under a long funding lease if the following condition is met. (2) The condition is that any part of the expenditure incurred by the person on the acquisition of the plant or machinery for leasing under the lease— (a) is (apart from those sections) allowable as a deduction in calculating the profits or losses of the trade, and (b) is so allowable as a result of the plant or machinery forming part of the trading stock of the trade. (3) For the purposes of this section the cases in which expenditure incurred by a person carrying on a trade on the acquisition of any plant or machinery for leasing under a lease is allowable as such a deduction include any case where— (a) the person becomes entitled to the deduction at any time after the expenditure is incurred, and (b) the deduction arises as a result of the plant or machinery forming part of the trading stock of the trade at that time. (4) If— (a) at any time any of sections 148A to 148F has applied for determining the amounts to be taken into account in calculating the profits or losses of the trade, and (b) the condition in subsection (2) is met at any subsequent time, those amounts, and any other amounts which (as a result of this section) are to be so taken into account, are subject to such adjustments as are just and reasonable. (5) All such assessments and adjustments of assessments are to be made as are necessary to give effect to subsection (4).

• (3) After section 148FA insert—

(148FB) (1) This section applies if— (a) a person is the lessee of any plant or machinery under a lease (“lease A”) that is not a long funding lease, (b) the person enters into a lease (“lease B”) of any of that plant or machinery (as lessor), and (c) lease B is a long funding lease. (2) Sections 148A to 148F do not apply in relation to lease B. (3) If by virtue of section 70H of CAA 2001 (tax return by lessee treating lease as long funding lease) lease A becomes a long funding lease (and does not cease to be such a lease), treat this section as never having applied in relation to lease B.

• (4) After section 148FB insert—

(148FC) (1) Sections 148A to 148F do not apply in the case of a person carrying on a trade who is or has been the lessor of any plant or machinery under a long funding lease if conditions A to C are met. (2) Condition A is that the long funding lease forms part of any arrangement entered into by the person which includes one or more other transactions (whether the arrangement is entered into before or after or at the inception of the lease). (3) Condition B is that the main purpose, or one of the main purposes, of the arrangement is to secure that, over the relevant period, there would be a substantial difference between— (a) the total amount of the amounts under the arrangement which are, in accordance with generally accepted accounting practice, recognised in determining the profit or loss of the trade for any period or taken into account in calculating the amounts which are so recognised, and (b) the total amount of the amounts under the arrangement which are taken into account in calculating the profits or losses of the trade. (4) For the purposes of condition B “the relevant period” means the period which begins with the inception of the lease and ends with the end of the term of the lease. (5) Condition C is that the difference would be attributable (wholly or partly) to the application of any of sections 148A to 148F in relation to the person by reference to the plant or machinery under the lease. (6) The reference in this section to an amount being recognised in determining the profit or loss of a trade for a period is to an amount being recognised for accounting purposes— (a) in the profit and loss account or income statement relating to the trade, (b) in the statement of recognised gains and losses or statement of changes in equity relating to the trade, or (c) in any other statement of items brought into account in calculating the profits and losses of the trade for that period. (7) For the purposes of this section it does not matter whether the parties to any transaction which forms part of the arrangement differ from the parties to any of the other transactions. (8) For the purposes of this section the cases in which two or more transactions are to be taken as forming part of an arrangement include any case in which it would be reasonable to assume that one or more of them— (a) would not have been entered into independently of the other or others, or (b) if entered into independently of the other or others, would not have taken the same form or been on the same terms. (9) If— (a) at any time any of sections 148A to 148F has applied for determining the amounts to be taken into account in calculating the profits or losses of the trade, and (b) conditions A to C are met at any subsequent time, those amounts, and any other amounts which (as a result of this section) are to be so taken into account, are subject to such adjustments as are just and reasonable. (10) All such assessments and adjustments of assessments are to be made as are necessary to give effect to subsection (9).

• (5) The amendment made by sub-paragraph (2) has effect where—

• (a) expenditure is incurred on or after 9 October 2007, or

• (b) a person carrying on a trade becomes entitled to a deduction in calculating the profits or losses of the trade as a result of any plant or machinery forming part of the trading stock of the trade on or after that date.

• (6) The amendment made by sub-paragraph (3) has effect where the lease mentioned in section 148FB(1)(b) of ITTOIA 2005 is entered into on or after 13 December 2007.

• (7) The amendment made by sub-paragraph (4) has effect in relation to arrangements entered into on or after 9 October 2007.

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• (1) If, at the beginning of 13 December 2007 (“the relevant date”)—

• (a) a company or a person carrying on a trade is the lessee of any plant or machinery under a lease that is not a long funding lease (“lease A”), and

• (b) the company or person is the lessor of any of that plant or machinery under a lease that is a long funding finance lease (“lease B”),

sub-paragraphs (2) to (10) apply in respect of lease B.

• (2) ... Section 148A of ITTOIA 2005 (rental earnings) does not apply in relation to a period of account within sub-paragraph (3).

• (3) A period of account is within this sub-paragraph if—

• (a) it begins on or after the relevant date, and

• (b) no rentals which were due under lease B before the relevant date are (wholly or in part) in respect of any part of the period of account.

• (4) For the purpose of calculating the profits of the lessor under lease B for a period of account ending on or after the relevant date that is not within sub-paragraph (3), treat the lessor as receiving for that period of account income attributable to lease B of an amount equal to the relevant amount.

• (5) The “relevant amount” is an amount equal to so much of the rentals that—

• (a) become due on or after the relevant date, and

• (b) are wholly or partly in respect of the period of account,

as would not reasonably be regarded as reflected in the rental earnings for that period of account.

“Rental earnings” here has the same meaning as in ... section 148A of ITTOIA 2005.

• (6) If any rental is paid for a period (“the rental period”) which begins before the relevant date or is not wholly within the period of account, for the purposes of sub-paragraph (5) treat the amount of that rent as equal to the amount apportioned (on a time basis) in respect of so much of the rental period as falls on or after the relevant date and within the period of account.

• (7) The income treated as received by virtue of sub-paragraph (4) is in addition to any amount brought into account under ... section 148A(2) of ITTOIA 2005.

• (8) ... Section 148B of ITTOIA 2005 (exceptional items) does not apply in relation to any profit or loss arising on or after the relevant date.

• (9) If ... section 148C of ITTOIA 2005 (lessor making termination payment) applies in respect of the termination of lease B on or after the relevant date, a deduction is allowed (in calculating the profits of the lessor) in respect of the sum paid to the lessee.

• (10) The amount of that deduction is (if it would otherwise exceed that amount) limited to the total amount brought into account in respect of the lease by virtue of sub-paragraph (2) or (4).

• (11) If lease A becomes a long funding lease by virtue of section 70H of CAA 2001 (and does not cease to be such a lease), treat this paragraph as never having applied in relation to lease B.

• (12) Chapter 6A of Part 2 of CAA 2001 (interpretation of provisions about long funding leases) applies in relation to this paragraph.

Plant and machinery allowances: anti-avoidance

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• (1) Chapter 17 of Part 2 of CAA 2001 (plant and machinery allowances: anti-avoidance) is amended as follows.

• (2) For section 228A substitute—

(228A) (1) Sections 228B and 228C apply where plant or machinery is the subject of a lease and finance leaseback. (2) Plant or machinery is the subject of a lease and finance leaseback if— (a) a person (“S”) leases the plant or machinery to another (“B”), (b) after the date of that transaction, the use of the plant or machinery falls within sub-paragraph (i), (ii) or (iii) of section 221(1)(b), and (c) it is directly as a consequence of having been leased under a finance lease that the plant or machinery is available to be so used after that date. (3) For the purposes of subsection (2), S leases the plant or machinery to B only if— (a) S grants B rights over the plant or machinery, (b) consideration is given for that grant, and (c) S is not required to bring all of that consideration into account under this Part.

• (3) In section 228B (lessee's income or profits: deductions)—

• (a) in subsection (1), for “the lessee's” substitute “ S's ”,

• (b) in subsection (2), for the words from “the total” to the end substitute “ the amount of the finance charges shown in the accounts. ”,

• (c) in subsection (4), in the definition of “Original Consideration”, for “entering into the relevant transaction” substitute “ granting B rights over the plant or machinery ”, and

• (d) the heading accordingly becomes “ S's income or profits: deductions ”.

• (4) In section 228C (lessee's income or profits: termination of leaseback)—

• (a) in subsection (2), for “the lessee” substitute “ S ”,

• (b) in subsection (3), in the formula, for “Net” substitute “ Original ” and for the definition of “Net Consideration” substitute—

“Original Consideration” means the consideration payable to S for granting B rights over the plant or machinery,

,

• (c) in subsection (6), for “the lessee's” substitute “ S's ” and for “the lessor” substitute “ B (or, where appropriate, an assignee of B) ”, and

• (d) the heading accordingly becomes “ S's income or profits: termination of leaseback ”.

• (5) Omit—

• (a) section 228D (lessor's income or profits),

• (b) section 228E (lessor's income or profits: termination of leaseback), and

• (c) section 228F (lease and finance leaseback).

• (6) In section 228G (leaseback not accounted for as finance lease in accounts of lessee)—

• (a) in subsection (1), for “the lessee” substitute “ S ”,

• (b) in subsection (2), for “the lessee” (in both places) substitute “ S ”,

• (c) in subsection (3), for “the lessee's” substitute “ S's ”,

• (d) in subsection (4), for “the lessee” substitute “ S ”,

• (e) in subsection (6), for “the lessee” substitute “ S ” and for the words from “increased by—” to the end substitute “ increased by the consideration payable to S for granting B rights over the plant or machinery. ”, and

• (f) the heading accordingly becomes “ Leaseback not accounted for as finance lease in S's accounts ”.

• (7) Section 228H (sections 228A to 228G: supplementary) is amended as follows.

• (8) In subsection (1)—

• (a) insert (as the first defined term)—

“consideration” does not include rentals;

,

• (b) omit the definition of “lessee”,

• (c) in the definition of “net book value”, for “the lessee's” substitute “ S's ”,

• (d) omit the definition of “restricted disposal value”,

• (e) before the definition of “termination” insert—

“S” does not include an assignee of S;

, and

• (f) in the definition of “termination”, omit “(except in section 228E)”, for “the lessee's” (in both places) substitute “ S's ” and for “the lessee” substitute “ S ”.

• (9) After that subsection insert—

(1A) For the purposes of sections 228A to 228G, references to consideration given (or payable to S) for the grant to B of rights over the plant or machinery do not include— (a) rentals payable under that grant, or (b) any relevant capital payment (within the meaning of section 785B of ICTA or section 809ZA of ITA 2007) to which either of those sections applies. (1B) In relation to a case where some but not all of the consideration mentioned in subsection (1A) falls within paragraph (b) of that subsection, sections 228B to 228G or section 228J have effect subject to such modifications as are just and reasonable.

• (10) In section 228J(8) (plant or machinery subject to further operating lease), in the definition of “lease and finance leaseback”, for “section 228F” substitute “ section 228A ”.

• (11) In section 774E(5)(b) of ICTA (structured finance arrangements: exceptions), omit “with the modifications contained in section 228F of that Act”.

• (12) The amendments made by this paragraph have effect in relation to transactions referred to in section 228A(2)(a) of CAA 2001 (as substituted by this paragraph) entered into on or after 9 October 2007.

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• (1) Section 228B of CAA 2001 (S's income or profits: deductions) is amended as follows.

• (2) After subsection (4) insert—

(5) If the use mentioned in section 228A(2)(b) includes use by a person (other than B) who is connected with S, this section applies in relation to that person as it applies in relation to S.

• (3) Accordingly, in the heading, after “profits” insert “ etc ”.

• (4) The amendments made by this paragraph have effect in relation to transactions referred to in section 228A(2)(a) of CAA 2001 entered into on or after 12 March 2008.

SCHEDULE 21

Introduction

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ITA 2007 is amended as follows.

Main provisions

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After section 74 insert—

(74A) (1) This section applies if— (a) during a tax year an individual carries on one or more trades, otherwise than as a partner in a firm, in a non-active capacity (see section 74C), and (b) the individual makes a loss in any of those trades (an “affected loss”) in that tax year. (2) There is a restriction on the amount of sideways relief and capital gains relief which (after applying the restrictions under the other provisions of this Chapter) may be given to the individual for any affected loss (but see subsections (7) and (8)). (3) The restriction is that the total amount of the sideways relief and capital gains relief given to the individual for all the affected losses must not exceed the cap for that tax year. (4) The cap for any tax year is £25,000. (5) The Treasury may by order amend the sum for the time being specified in subsection (4). (6) If— (a) in a tax year an individual makes a loss to which the restriction under section 103C (losses in trade carried on by non-active or limited partner) applies, and (b) sideways relief or capital gains relief is given to the individual for that loss, the amount of the cap under this section for the tax year in the case of the individual is reduced by the amount of that loss. (7) The restriction under this section does not apply to so much of any affected loss as derives from qualifying film expenditure (see section 74D). (8) The restriction under this section does not affect the giving of sideways relief for a loss made in a trade against the profits of that trade. (9) In this section “trade” does not include a trade which consists of the underwriting business of a member of Lloyd's (within the meaning of section 184 of FA 1993). (10) For the purposes of this section— (a) capital gains relief is, in relation to a loss, the treatment of a loss as an allowable loss by virtue of section 261B of TCGA 1992 (use of trading loss as a CGT loss), and (b) capital gains relief is given for a loss when it is so treated. (74B) (1) This section applies if— (a) during a tax year an individual carries on a trade, otherwise than as a partner in a firm, in a non-active capacity (see section 74C), (b) the individual makes a loss in the trade in that tax year, and (c) the loss arises directly or indirectly in consequence of, or otherwise in connection with, relevant tax avoidance arrangements. (2) No sideways relief or capital gains relief may be given to the individual for the loss (but subject to subsection (5)). (3) In subsection (1) “relevant tax avoidance arrangements” means arrangements made by the individual the main purpose, or one of the main purposes, of which is the obtaining of a reduction in tax liability by means of sideways relief or capital gains relief. (4) In subsection (3) “arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable). (5) This section has no effect in relation to any loss that derives wholly from qualifying film expenditure (see section 74D). (6) Subsection (10) of section 74A (capital gains relief) applies for the purposes of this section. (74C) (1) For the purposes of sections 74A and 74B an individual carries on a trade in a non-active capacity during a tax year if the individual— (a) carries on the trade at a time during the year, and (b) does not devote a significant amount of time to the trade in the relevant period for the tax year. (2) For the purposes of this section an individual devotes a significant amount of time to a trade in the relevant period for a tax year if, in the relevant period, the individual spends an average of at least 10 hours a week personally engaged in activities of the trade and those activities are carried on— (a) on a commercial basis, and (b) with a view to the realisation of profits as a result of the activities. (3) For this purpose “the relevant period” means the basis period for the tax year (unless the basis period is shorter than 6 months). (4) If the basis period for the tax year is shorter than 6 months, “the relevant period” means— (a) the period of 6 months beginning with the date on which the individual first started to carry on the trade (if the basis period begins with that date), or (b) the period of 6 months ending with the date on which the individual permanently ceased to carry on the trade (if the basis period ends with that date). (5) If— (a) any relief is given on the assumption that the individual devoted or will devote a significant amount of time to the trade in the relevant period for a tax year, but (b) the individual in fact failed or fails to do so, the relief is withdrawn by the making of an assessment to income tax under this section. (74D) (1) For the purposes of sections 74A and 74B expenditure is qualifying film expenditure if— (a) it is deducted under a relevant film provision for the purposes of calculating the profits of a trade, or (b) it is incidental expenditure which (although not deducted under a relevant film provision) is incurred in connection with the production of a film, or the acquisition of the original master version of a film, in relation to which expenditure is so deducted. (2) Expenditure is incidental if it is on management, administration or obtaining finance. (3) The extent to which expenditure is within subsection (1)(b) is determined on a just and reasonable basis. (4) For the purposes of sections 74A and 74B the amount of any loss that derives from qualifying film expenditure is determined on a just and reasonable basis. (5) In this section— - “the acquisition of the original master version of a film” has the same meaning as in Chapter 9 of Part 2 of ITTOIA 2005 (see sections 130 and 132 of that Act), - “film” is to be read in accordance with paragraph 1 of Schedule 1 to the Films Act 1985, and - “a relevant film provision” means any one of sections 137 to 140 of ITTOIA 2005 (relief for certified master versions of films).

Other amendments

3

In section 32 (liability not dealt with in the calculation), before the entry relating to section 79(1) insert— “ under section 74C(5) (non-active traders: withdrawal of relief), ”.

4

In section 64(8) (deduction of trade losses from general income), after paragraph (b) insert—

(ba) sections 74A to 74D (general restrictions on relief),

.

5

In section 72(5) (early trade loss relief)—

• (a) in paragraph (b), after “relief” insert “ unless trade is commercial etc ”, and

• (b) after that paragraph insert—

(ba) sections 74A to 74D (general restrictions on relief),

.

Commencement

6

• (1) Section 74A of ITA, and the other provisions inserted into that Act by this Schedule so far as relating to that section, have effect in relation to any loss made by an individual in the tax year 2007-08 or any subsequent tax year.

• (2) But those provisions do not have effect in relation to a loss made by an individual in a tax year the basis period for which ended before 12 March 2008.

• (3) If the basis period for the tax year in which a loss is made by an individual begins before 12 March 2008 and ends on or after that date (a “straddling basis period”), the amount of that loss for the purposes of section 74A of ITA 2007 is—

• (a) the amount of sideways relief and capital gains relief which (after applying the restrictions under the other provisions of Chapter 2 of Part 4 of that Act) may be given to the individual for that loss, less

• (b) the amount (if any) of the pre-announcement loss.

• (4) “The pre-announcement loss” is determined as follows.

• (5) Calculate the profits or losses of the straddling basis period, but without regard to capital allowances and qualifying film expenditure (within the meaning of section 74D of ITA 2007).

• (6) If that calculation produces a loss, apportion the loss produced by that calculation to the part of the straddling basis period which falls before 12 March 2008 in proportion to the number of days in that part.

• (7) Calculate so much of the loss of the straddling basis period as derives from relevant pre-announcement capital expenditure.

• (8) The pre-announcement loss is the sum of—

• (a) the amount of the loss apportioned under sub-paragraph (6) (if any), and

• (b) so much of the loss of the straddling period (if any) as derives from relevant pre-announcement capital expenditure.

• (9) For the purposes of this paragraph the amount of the loss of the straddling basis period that derives from relevant pre-announcement capital expenditure is determined on a just and reasonable basis.

• (10) In this paragraph “relevant pre-announcement capital expenditure” means—

• (a) any capital allowance in respect of expenditure paid before 12 March 2008, and

• (b) any capital allowance in respect of expenditure paid on or after that date pursuant to an unconditional obligation in a contract made before that date;

and for this purpose “an unconditional obligation” means an obligation which may not be varied or extinguished by the exercise of any right conferred on the individual in question (whether or not under the contract).

7

• (1) Section 74B of ITA, and the other provisions inserted into that Act by this Schedule so far as relating to that section, have effect in relation to a loss arising directly or indirectly in consequence of, or otherwise in connection with, relevant tax avoidance arrangements made on or after 12 March 2008.

• (2) But those provisions do not have effect if the arrangements were made pursuant to an unconditional obligation in a contract made before that date; and for this purpose “an unconditional obligation” means an obligation which may not be varied or extinguished by the exercise of any right conferred on the individual in question (whether or not under the contract).

SCHEDULE 22

Rent factoring of leases of plant or machinery

1

• (1) Section 785A of ICTA (rent factoring of leases of plant or machinery) is amended as follows.

• (2) In subsection (1), omit paragraph (d).

• (3) In subsection (2)—

• (a) for “relevant portion of the consideration” substitute “ market value of the rights transferred ”, and

• (b) for “in a period of account to the extent that it is receivable in that period of account” substitute “ at the time of the transfer ”.

• (4) After that subsection insert—

(2A) But subsection (2) does not apply if and to the extent that any of the market value of the rights transferred is (apart from this section) brought into account— (a) as income, or (b) as a capital allowances disposal receipt.

• (5) After subsection (5) insert—

(5ZA) The references in subsections (1)(c) and (3) to another person include any person in which P has an interest, including any partnership of which P is a member and the trustees of any trust of which P is a beneficiary.

• (6) The amendments made by this paragraph have effect in relation to arrangements for transfers of rights entered into on or after 12 March 2008.

Credit allowable in relation to interest

2

• (1) In section 807A of ICTA (disposals and acquisitions of company loan relationships with or without interest), omit subsection (3) (credit allowable as if amount of foreign tax had been paid).

• (2) Accordingly, omit—

• (a) in section 807A of ICTA, subsections (5) and (6) and, in subsection (7), the definitions of “related transaction” and “trading credit”, and

• (b) section 91(4) of FA 1997.

• (3) The repeals made by this paragraph have effect in relation to related transactions on or after 12 March 2008.

Distributions arising from tax arrangements

3

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Disposals for consideration not recognised by accounting practice

4

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Avoidance relying on continuity of treatment provisions

5

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Distributions from shares treated as loan relationships

6

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Depreciatory transactions

7

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

8

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

9

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Falsifying transactions

10

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

11

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

12

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Non-qualifying shares

13

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income producing assets

14

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Exit arrangements

15

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Schemes etc designed to reproduce interest-like return

16

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Partnerships

17

• (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (2) In section 131 of FA 2004 (companies in partnership), insert at the end—

(10) Subsection (4) does not apply if and to the extent that the chargeable amount is brought into account under section 91H or 91I of the Finance Act 1996.

• (3) The amendments made by this paragraph have effect in relation to returns arising on or after 12 March 2008.

Loan relationships treated differently by debtor and creditor

18

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Commercial rate of interest

19

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Derivative contracts

20

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Restrictions on relief for interest payments

21

• (1) Section 384 of ITA 2007 (general restrictions on relief for interest payments) is amended as follows.

• (2) In subsection (2), for “interest is paid at a rate in excess of a reasonable commercial rate” substitute “ the interest paid on a loan in a tax year exceeds a reasonable commercial amount of interest on the loan for the relevant period ”.

• (3) After subsection (2) insert—

(3) The relevant period is the tax year or, if the loan exists for part only of the tax year, the part of the tax year for which the loan exists. (4) A reasonable commercial amount of interest on the loan for the relevant period is an amount which, together with any interest paid before that period (other than unrelieved interest), represents a reasonable commercial rate of interest on the loan from the date it was made to the end of that period. (5) “Unrelieved interest” means interest which because of subsection (2) is not eligible for relief under this Chapter.

• (4) The amendments made by this paragraph have effect in relation to interest paid on or after 9 October 2007; but in relation to interest paid in the period beginning with that date and ending with 5 April 2008, they have effect as if the references in section 384(2) and (3) to a tax year were to that period.

SCHEDULE 23

Introduction

1

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Section 572A

2

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Section 573

3

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Section 574

4

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Section 575

5

Omit section 575 (allowable deductions for manufactured dividends on UK shares: restriction on double-counting).

Section 578

6

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Section 579

7

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Section 580

8

Omit section 580 (allowable deductions for manufactured interest on UK securities: restriction on double counting).

Section 581A

9

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Section 583

10

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Capital gains

11

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

12

In ITA 2007, omit paragraph 335(5) of Schedule 1 (which amended section 263D(7) of TCGA 1992).

SCHEDULE 24

Part 1 — Amendments of CAA 2001

1

CAA 2001 is amended as follows.

2

In Part 2, after Chapter 3 insert—

(38A) (1) An annual investment allowance is not available unless the qualifying expenditure is AIA qualifying expenditure. (2) Expenditure is AIA qualifying expenditure if— (a) it is incurred by a qualifying person on or after the relevant date, and (b) it is not excluded by any of the general exclusions in section 38B. (3) “Qualifying person” means— (a) an individual, (b) a partnership of which all the members are individuals, or (c) a company. (4) In determining whether expenditure is AIA qualifying expenditure, any effect of section 12 on the time at which it is to be treated as incurred is to be disregarded. (5) “The relevant date” means— (a) for corporation tax purposes, 1 April 2008, and (b) for income tax purposes, 6 April 2008. (38B) Expenditure within any of the following general exclusions is not AIA qualifying expenditure. General exclusion 1 The expenditure is incurred in the chargeable period in which the qualifying activity is permanently discontinued. General exclusion 2 The expenditure is incurred on the provision of a car (as defined by section 81). General exclusion 3 The expenditure is incurred wholly for the purposes of a ring fence trade in respect of which tax is chargeable under section 501A of ICTA (supplementary charge in respect of ring fence trades). General exclusion 4 The circumstances of the incurring of the expenditure are that— (a) the provision of the plant or machinery on which the expenditure is incurred is connected with a change in the nature or conduct of the trade or business carried on by a person other than the person incurring the expenditure, and (b) the obtaining of an annual investment allowance is the main benefit, or one of the main benefits, which could reasonably be expected to arise from the making of the change. General exclusion 5 Any of the following sections applies— - section 13 (use for qualifying activity of plant or machinery provided for other purposes); - section 13A (use for other purposes of plant or machinery provided for long funding leasing); - section 14 (use for qualifying activity of plant or machinery which is a gift). This is subject to section 161 (pre-trading expenditure on mineral exploration and access).

3

In Chapter 5 of Part 2 (allowances and charges), insert at the beginning—

(51A) (1) A person is entitled to an allowance (an “annual investment allowance”) in respect of AIA qualifying expenditure if— (a) the expenditure is incurred in a chargeable period to which this Act applies, and (b) the person owns the plant and machinery at some time during that chargeable period. (2) Any annual investment allowance is made for the chargeable period in which the AIA qualifying expenditure is incurred. (3) If the AIA qualifying expenditure incurred in a chargeable period is less than or equal to the maximum allowance, the person is entitled to an annual investment allowance in respect of all the AIA qualifying expenditure. (4) If the AIA qualifying expenditure incurred in a chargeable period is more than the maximum allowance, the person is entitled to an annual investment allowance in respect of so much of the AIA qualifying expenditure as does not exceed the maximum allowance. (5) The maximum allowance is £50,000. (6) But if the chargeable period is more or less than a year, the maximum allowance is proportionately increased or reduced. (7) A person may claim an annual investment allowance in respect of all the AIA qualifying expenditure in respect of which the person is entitled to an allowance, or in respect of only some of it. (8) The Treasury may by order substitute for the amount for the time being specified in subsection (5) such other amount as it thinks fit. (9) An order under subsection (8) may make such incidental, supplemental, consequential and transitional provision as the Treasury thinks fit. (10) This section is subject to— (a) sections 51B to 51N (restrictions on entitlement to annual investment allowance), (b) section 205 (reduction of allowance if plant or machinery provided partly for purposes other than those of qualifying activity), (c) section 210 (reduction of allowance if it appears that a partial depreciation subsidy is or will be payable), and (d) sections 217, 218A and 241 (anti-avoidance: no allowance in certain cases), and needs to be read with section 236 (additional VAT liabilities). (51B) (1) A company is entitled to a single annual investment allowance in respect of all the qualifying activities carried on by the company in a chargeable period. (2) The company may allocate the annual investment allowance to the relevant AIA qualifying expenditure as it thinks fit. (3) The relevant AIA qualifying expenditure is the AIA qualifying expenditure incurred by the company in the chargeable period mentioned in subsection (1). (4) This section is subject to sections 51C, 51D and 51E. (51C) (1) This section applies in relation to— (a) a company which, in a financial year, is a parent undertaking of one or more other companies, and (b) those other companies. (2) The companies are entitled to a single annual investment allowance between them in respect of the relevant AIA qualifying expenditure. (3) The companies may allocate the annual investment allowance to the relevant AIA qualifying expenditure as they think fit. (4) The relevant AIA qualifying expenditure is the AIA qualifying expenditure incurred by the companies in chargeable periods ending in the financial year mentioned in subsection (1). (5) A company (“P”) is a parent undertaking of another company (“C”) in a financial year if P is a parent undertaking of C at the end of C's chargeable period ending in that financial year. (6) In this section “parent undertaking” has the same meaning as in section 1162 of the Companies Act 2006. (7) This section is subject to section 51D. (51D) (1) Where in a financial year two or more groups of companies are— (a) controlled by the same person (see section 51F), and (b) related to one another (see section 51G), this section applies in relation to the companies which are members of those groups. (2) The companies are entitled to a single annual investment allowance between them in respect of the relevant AIA qualifying expenditure. (3) The companies may allocate the annual investment allowance to the relevant AIA qualifying expenditure as they think fit. (4) The relevant AIA qualifying expenditure is the AIA qualifying expenditure incurred by the companies in chargeable periods ending in the financial year mentioned in subsection (1). (5) In this section and in sections 51F and 51G, a group of companies means— (a) a company which, in the financial year mentioned in subsection (1), is a parent undertaking of one or more other companies, and (b) those other companies, (and the members of the group are the company which is the parent undertaking and those other companies). (6) A company (“P”) is a parent undertaking of another company (“C”) in a financial year if P is a parent undertaking of C at the end of C's chargeable period ending in that financial year. (7) In this section “parent undertaking” has the same meaning as in section 1162 of the Companies Act 2006. (51E) (1) This section applies in relation to two or more companies which in a financial year are— (a) controlled by the same person (see section 51F), and (b) related to one another (see section 51G), and in relation to which to neither section 51C nor section 51D applies. (2) The companies are entitled to a single annual investment allowance between them in respect of the relevant AIA qualifying expenditure. (3) The companies may allocate the annual investment allowance to the relevant AIA qualifying expenditure as they think fit. (4) The relevant AIA qualifying expenditure is the AIA qualifying expenditure incurred by the companies in chargeable periods ending in the financial year mentioned in subsection (1). (51F) (1) A company is controlled by a person in a financial year if it is controlled by that person at the end of its chargeable period ending in that financial year. (2) A group of companies is controlled by a person in a financial year if the company which is the parent undertaking is controlled by that person at the end of its chargeable period ending in that financial year. (3) Section 574(2) defines “control” in relation to a company which is a body corporate. (4) In relation to a company (“C”) which is not a body corporate, control means the power of a person (“P”) to secure— (a) by means of the holding of shares or the possession of voting power in relation to C or another body, or (b) as a result of any powers conferred by the constitution of C or another body, that the affairs of C are conducted in accordance with P's wishes. (5) In subsection (4) “shares” has the meaning given by section 1161(2) of the Companies Act 2006. (51G) (1) A company (“C1”) is related to another company (“C2”) in a financial year if one or both of— (a) the shared premises condition, and (b) the similar activities condition, are met in relation to the companies in that financial year. (2) Where C1 is related to C2 in a financial year, C1 is also related to any other company to which C2 is related in that financial year. (3) A group of companies (“G1”) is related to another group of companies (“G2”) in a financial year if in that financial year a company which is a member of G1 is related to a company which is a member of G2. (4) Where G1 is related to G2 in a financial year, G1 is also related to any other group of companies to which G2 is related in that financial year. (5) The shared premises condition is met in relation to two companies in a financial year if, at the end of the relevant chargeable period of one or both of the companies, the companies carry on qualifying activities from the same premises. (6) The similar activities condition is met in relation to two companies in a financial year if— (a) more than 50% of the turnover of one company for the relevant chargeable period is derived from qualifying activities within a particular NACE classification, and (b) more than 50% of the turnover of the other company for the relevant chargeable period is derived from qualifying activities within that NACE classification. (7) In this section— - “NACE classification” means the first level of the common statistical classification of economic activities in the European Union established by Regulation (EC) No 1893/2006 of the European Parliament and the Council of 20 December 2006 (as that Regulation has effect from time to time), and - “relevant chargeable period”, in relation to a company and a financial year, means the chargeable period of the company ending in that financial year. (51H) (1) This section applies in relation to two or more qualifying activities which, in a tax year— (a) are carried on by a qualifying person other than a company, (b) are controlled by the same person (see section 51I), and (c) are related to one another (see section 51J). (2) A qualifying activity is carried on by a qualifying person in a tax year if it is carried on by the person at the end of the chargeable period for the activity ending in the tax year. (3) Where all the qualifying activities are carried on by one qualifying person, that person is entitled to a single annual investment allowance in respect of the relevant AIA qualifying expenditure. (4) Where the qualifying activities are carried on by more than one qualifying person, those persons are entitled to a single annual investment allowance between them in respect of the relevant AIA qualifying expenditure. (5) The person or persons carrying on the qualifying activities may allocate the annual investment allowance to the relevant AIA qualifying expenditure as the person or persons think fit. (6) The relevant AIA qualifying expenditure is the AIA qualifying expenditure incurred for the purposes of the qualifying activities in the chargeable periods for those activities ending in the tax year mentioned in subsection (1). (51I) (1) A qualifying activity is controlled by a person in a tax year if it is controlled by the person at the end of the chargeable period for that activity which ends in that tax year. (2) A qualifying activity carried on by an individual is controlled by the individual who carries it on. (3) A qualifying activity carried on by a partnership is controlled by the person (if any) who controls the partnership. (4) Section 574(3) defines “control” in relation to a partnership. (5) Where partners who between them control one partnership also between them control another partnership, the qualifying activities carried on by the partnerships are to be treated as controlled by the same person. (51J) (1) A qualifying activity (“A1”) is related to another qualifying activity (“A2”) in a tax year if one or both of— (a) the shared premises condition, and (b) the similar activities condition, are met in relation to the activities in the tax year. (2) Where A1 is related to A2 in a tax year, A1 is also related to any other qualifying activity to which A2 is related in that tax year. (3) The shared premises condition is met in relation to two qualifying activities in a tax year if, at the end of the relevant chargeable period for one or both of the activities, the activities are carried on from the same premises. (4) The similar activities condition is met in relation to two qualifying activities in a tax year if, at the end of the relevant chargeable period for one or both of the activities, the activities are within the same NACE classification. (5) In this section— - “NACE classification” has the same meaning as in section 51G, and - “relevant chargeable period”, in relation to a qualifying activity and a tax year, means the chargeable period for that activity ending in that tax year. (51K) (1) This section applies where because of section 51B, 51C, 51D, 51E or 51H a person is (or persons between them are) entitled to a single annual investment allowance in respect of relevant AIA qualifying expenditure. (2) If the relevant AIA qualifying expenditure is less than or equal to the maximum allowance, the person is (or the persons between them are) entitled to an annual investment allowance in respect of all the relevant AIA qualifying expenditure. (3) If the relevant AIA qualifying expenditure is more than the maximum allowance, the person is (or the persons between them are) entitled to an annual investment allowance in respect of so much of the relevant AIA qualifying expenditure as does not exceed the maximum allowance. (4) The maximum allowance is the amount for the time being specified in section 51A(5); but this is subject to sections 51M and 51N (which provide that in certain cases an additional amount of annual investment allowance may be available). (5) The person or persons may claim an annual investment allowance in respect of all the relevant AIA qualifying expenditure in respect of which the person is (or the persons between them are) entitled to an allowance, or in respect of only some of it. (6) The amount of the annual investment allowance allocated to relevant AIA qualifying expenditure incurred in a chargeable period must not exceed the amount of the annual investment allowance to which a person would be entitled in respect of that expenditure under section 51A(5) and (6) if section 51B, 51C, 51D, 51E or 51H did not apply. (51L) (1) This section applies where— (a) more than one chargeable period of a company ends in a financial year, or (b) more than one chargeable period for a qualifying activity ends in a tax year. (2) Whether section 51C, 51D or 51E applies in relation to the company, or section 51H applies in relation to the qualifying activity, is to be determined in relation to each chargeable period ending in that year as if it were the only chargeable period ending in that year. (3) AIA qualifying expenditure incurred in a chargeable period in relation to which the section in question does not apply is not relevant AIA qualifying expenditure for the purposes of that section. (51M) (1) This section applies where— (a) section 51H applies in relation to two or more qualifying activities controlled by a person (“P”) in a tax year, and (b) the relevant chargeable period for one of those qualifying activities (“A1”) is longer than a year. (2) An additional amount of annual investment allowance may be allocated to relevant AIA qualifying expenditure incurred for the purposes of A1. (3) That additional amount is the amount, or the aggregate of the amounts, of any relevant unused allowance for each tax year (a “previous tax year”)— (a) which falls before the tax year mentioned in subsection (1)(a), and (b) in which part of A1's relevant chargeable period falls. (4) The amount of the relevant unused allowance for a previous tax year is (subject to subsections (7) and(8))— $MA-AM$ but where the amount given by that formula is less than nil, the amount of the relevant unused allowance for the previous tax year is nil. (5) In subsection (4)— - MA is the amount specified in section 51A(5) in relation to the previous tax year, and - AM is the amount of any annual investment allowance made under section 51A or 51K in respect of AIA qualifying expenditure incurred for the purposes of a relevant qualifying activity in the chargeable period for that activity ending in the previous tax year. (6) “Relevant qualifying activity” means— (a) any qualifying activity carried on by a qualifying person other than a company which was controlled by P in the previous tax year (see section 51I) and related to A1 in that tax year (see section 51J), and (b) if A1 was controlled by P in the previous tax year (see section 51I), A1. (7) Where any part of the amount calculated under subsection (4) has, on a previous application of this section, been allocated to AIA qualifying expenditure incurred for the purposes of a qualifying activity controlled by P in a tax year before that mentioned in subsection (1)(a), the amount of the relevant unused allowance is reduced accordingly. (8) Where the amount of the relevant unused allowance for a previous tax year would (apart from this subsection) exceed— $DCPYDY×MA$ the amount of the relevant unused allowance for that tax year is limited to the amount given by that formula. (9) In subsection (8)— - DCPY is the number of days in A1's relevant chargeable period falling in the previous tax year, - DY is the number of days in that tax year, and - MA has the meaning given by subsection (5). (10) Nothing in this section prevents section 51K(6) applying in relation to relevant AIA qualifying expenditure incurred for the purposes of A1. (11) In this section references to a relevant chargeable period, in relation to a qualifying activity, are to the chargeable period for that activity ending in the tax year mentioned in subsection (1)(a). (51N) (1) This section applies where— (a) section 51H applies in relation to two or more qualifying activities controlled by a person (“P”) in a tax year, and (b) the relevant chargeable period for more than one of those qualifying activities is longer than a year. (2) Section 51M applies in relation to each of the qualifying activities mentioned in subsection (1)(b) and the tax year mentioned in subsection (1)(a), as it applies in relation to A1 and the tax year mentioned in subsection (1)(a) of that section. (3) But where two or more of the qualifying activities mentioned in subsection (1)(b) were related in a previous tax year, section 51M applies with the following modifications. (4) The amount of any relevant unused allowance for that tax year is to be calculated under section 51M(4) to (7) (without regard to section 51M(8)). (5) For that purpose section 51M(6) applies as if the references to A1 were references to any of the qualifying activities mentioned in subsection (1)(b). (6) The amount of the relevant unused allowance may be allocated between those activities, but this is subject to subsection (7). (7) The amount of the relevant unused allowance allocated to any one of those activities may not exceed the amount given by the formula in section 51M(8).

4

After section 52 insert—

(52A) A person may not claim an annual investment allowance and a first-year allowance in respect of the same expenditure.

5

In section 58 (allocation of qualifying expenditure to pools), after subsection (4) insert—

(4A) If an annual investment allowance is made to a person for a chargeable period— (a) the AIA qualifying expenditure in respect of which the allowance is made must be allocated to the appropriate pool (or pools) in that chargeable period, and (b) the available qualifying expenditure in a pool to which the expenditure (or some of it) is allocated is reduced by the amount of that expenditure.

6

• (1) Section 205 (reduction of first-year allowances) is amended as follows.

• (2) In subsection (1), after “any” insert “ annual investment allowance or ”.

• (3) In the heading, after “of” insert “ annual investment allowance and ”.

7

• (1) Section 210 (reduction of first-year allowances) is amended as follows.

• (2) In subsection (1), after “amount of any” insert “ annual investment allowance or ”.

• (3) In the heading, after “of” insert “ annual investment allowance and ”.

8

• (1) Section 217 (restrictions on allowances) is amended as follows.

• (2) In subsection (1), for “a first-year allowance is not” substitute “ no annual investment allowance or first-year allowance is ”.

• (3) In subsection (2), after “Any” insert “ annual investment allowance or ”.

• (4) In the heading, after “No” insert “ annual investment allowance or ”.

9

After section 218 insert—

(218A) (1) This section applies where an arrangement is entered into wholly or mainly for a disqualifying purpose. (2) Arrangements are entered into for a disqualifying purpose if their main purpose, or one of their main purposes, is to enable a person to obtain an annual investment allowance to which the person would not otherwise be entitled. (3) The annual investment allowance mentioned in subsection (2) is not to be made. (4) Any annual investment allowance which is prohibited by subsection (3), but which has already been made, is to be withdrawn.

10

• (1) Section 236 (additional VAT liability generates first-year allowance) is amended as follows.

• (2) After subsection (3) insert—

(3A) Subsection (3B) applies if— (a) the original expenditure was AIA qualifying expenditure, and (b) the additional VAT liability is incurred at a time when the plant or machinery is provided for the purposes of the qualifying activity. (3B) The additional VAT liability is to be regarded for the purposes of this Part as AIA qualifying expenditure incurred on the same plant or machinery as the original expenditure in the chargeable period in which the liability accrues. (3C) Section 51A(7) applies to AIA qualifying expenditure constituted by the additional VAT liability as it applies to other AIA qualifying expenditure.

• (3) In the heading, after “allowance” insert “ or annual investment allowance ”.

11

In section 237(1) (exceptions to section 236), after “liability is not” insert “ AIA qualifying expenditure or ”.

12

• (1) Section 241 (no first-year allowance in respect of additional VAT liability) is amended as follows.

• (2) In subsection (1)(b), before “a first-year” insert “ an annual investment allowance or ”.

• (3) In subsection (2), for “A first-year allowance is not” substitute “ No annual investment allowance or first-year allowance is ”.

• (4) In subsection (3), after “Any” insert “ annual investment allowance or ”.

• (5) In the heading, after “No” insert “ annual investment allowance or ”.

13

In section 263(3) (qualifying activities carried on in partnership), after “Any” insert “ annual investment allowance, ”.

14

In section 265(4) (successions: general), after “to” insert “ an annual investment allowance or ”.

15

In Part 2 of Schedule 1 (index of defined expressions), insert at the appropriate place—

AIA qualifying expenditure	section 38A

.

Part 2 — Amendments of other enactments

ICTA

16

ICTA is amended as follows.

17

In section 395(1)(c) (leasing contracts and company reconstructions), after “for which” insert “ an annual investment allowance or ”.

18

In paragraph 1(6)(b)(i) of Schedule 18 (group relief), before “a first-year” insert “ an annual investment allowance or ”.

FA 2000

19

• (1) Schedule 22 to FA 2000 (tonnage tax) is amended as follows.

• (2) In paragraph 87(1)(a), for “a first-year allowance shall not” substitute “ no annual investment allowance or first-year allowance is to be ”.

• (3) In paragraph 94(2), after “any” insert “ annual investment allowance or ”.

ITA 2007

20

ITA 2007 is amended as follows.

21

In section 76 (first-year allowances)—

• (a) after “from” insert “ an annual investment allowance or ”, and