What is the purpose of section 398C of the Corporation Tax Act 2010?

Section 398C acts as a gateway to sections 398D and 398E by defining the 'relevant activity' for companies whose trade or property business includes leasing plant or machinery. It clarifies which broader activity is subject to the special restrictions that follow, ensuring the rules apply to the whole trade or property business, not just the leasing element in isolation.

What does 'relevant activity' mean under section 398C CTA 2010?

The 'relevant activity' is a defined term used in sections 398D and 398E. If the leasing of plant or machinery forms part of a trade, the relevant activity is that entire trade. If the leasing forms part of a property business instead, the relevant activity is the entire property business. The special provisions then apply to the relevant activity as a whole.

How does section 398C affect a company that leases plant or machinery as part of a wider trade?

Where a company's leasing of plant or machinery forms part of a wider trade, section 398C designates the whole trade as the 'relevant activity.' This means the special restrictions in sections 398D and 398E — covering loss restrictions and artificial profit reductions — apply to the trading profits and losses of the entire trade, not just the leasing component.

Why is section 398C important for accountants advising lessor companies?

Section 398C is critical because it determines whether the restrictions in sections 398D and 398E apply to a trade or a property business. By identifying where the leasing sits, advisers can establish which set of results — trading or property business profits and losses — will be subject to restrictions following a sale of the lessor's leasing business.

Corporation Tax Act 2010 section 398C

Special treatment of A's trade or business that includes leasing

Section 398C introduces the concept of the "relevant activity" and signposts the special rules in sections 398D and 398E that apply to a company's trade or property business where that trade or business consists of or includes leasing plant or machinery.

This section acts as a gateway to sections 398D and 398E, which impose special restrictions on the lessor company's trade or property business that includes plant or machinery leasing.
Where the leasing business forms part of a trade, the entire trade is treated as the "relevant activity" for the purposes of those further sections.
Where the leasing business forms part of a property business, the entire property business is treated as the "relevant activity" instead.
The term "relevant activity" is a defined label used consistently in sections 398D and 398E to identify which trade or property business is subject to the special restrictions.

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