Capital Allowances Act 2001 section 228J

Plant or machinery subject to further operating lease

Section 228J limits the tax deductions available when plant or machinery that is already part of a sale and finance leaseback or lease and finance leaseback arrangement is also made the subject of an additional operating lease back to the original seller (or a connected person).

• Where plant or machinery under a finance leaseback also becomes the subject of an operating lease starting on or after 18 May 2004, with the original seller (S) or a connected person as lessee, and the lease is not treated as a finance lease in the lessee's accounts, special restrictions apply.
• The lessee may not deduct more than the "relevant amount" (the permitted maximum under section 228B for the leaseback) when calculating taxable income or profits in respect of amounts payable under the operating lease.
• For the lessor, any reduction in amounts receivable caused by sums due to the lessee under the operating lease must be ignored, and amounts receivable exceeding the relevant amount may also be disregarded — ensuring the lessor is not undertaxed through artificially reduced income.
• Where only some of the plant or machinery is covered by the operating lease, the restrictions are applied on a just and reasonable apportionment basis.