BLM81040 - Sale of lessor companies and similar arrangements: partnerships: meaning of business of leasing plant or machinery (FA06/SCH10/PARA25 and 26)

The rules in paragraphs 6 to 8 of Schedule 10 determine whether a company is carrying on a business of leasing plant or machinery (see BLM80100 onwards). These same rules apply, with modifications, for determining whether a company carries on a business of leasing plant or machinery in partnership.

Paragraph 25 modifies the basic rules to accommodate businesses carried on in partnership so that ‘relevant company’ is read as a reference to ‘the partnership’.

As for lessor companies the partnership business must fulfil condition A or condition B.

Condition A: At least half of the partnership’s plant or machinery must be subject to a lease, see BLM80115.

Condition B: At least half of the partnership’s income in a specified period must be derived from leasing, see BLM80160.

The conditions are tested on the relevant day. The relevant day is the day on which the partnership shares change.

The balance sheet value of plant or machinery held by the partnership must be adjusted to take into consideration plant or machinery assets that are transferred into the partnership from associated companies of the relevant company during the day on which the change takes place. Paragraphs 25 and 26 set out the meaning of ‘associated company’ for the purposes of condition A.

The rules for identifying an associated company of the relevant company deal with situations where there is a qualifying change in the partner company’s interest in the business and also where there is a qualifying change in the ownership of a partner company.

An ‘associated company of the relevant company’ in this context is to be read as each of:

1. the partner company that you are considering;
   
   
2. any company which is an associated company of that partner company;
   
   
3. any other partner company whose interest in the business falls
   
   
4. any other partner company in relation to which there is a qualifying change of ownership on the day; and
   
   
5. any company which is an associated company of any other partner company mentioned in (c) or (d).

Broadly companies are ‘associated companies’ for these purposes if at the start of the day one of the two has control of the other or both are under the control of the same person or persons. Control takes its meaning from section 416 ICTA 1988.

The rules identify associated companies so as to make adjustments to the partnership balance sheet figures when an asset is transferred to the partnership from an associated company on the day of the change in partnership profit sharing arrangements. These amounts would not be reflected in the balance sheet of the partnership at the start of the day and could have a significant effect on the operation of the test.