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 sold 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 2010. 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, 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 + 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 2010. 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.
If 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 on one day and that
day is before 2 June 2006 the effects of the Schedule could be
cancelled even when there is 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.
