Introduction Summary
1.Section 27 and Schedule 5 introduce legislation to tackle two avoidance schemes involving the leasing of plant or machinery in relation to which HM Revenue & Customs (HMRC) have received disclosures.
2.The first scheme involves arrangements intended to create a company that is taxed on very little income from the leasing of an asset, but which is potentially able to claim capital allowances on the full cost of the asset, creating tax losses where there is a commercial profit. The first scheme may, alternatively or additionally, rely on obtaining a deduction for a rebate of rentals to generate a tax loss where there is a commercial profit.
3.The second scheme involves arrangements where a lessor that has claimed capital allowances in the initial loss-making phase of a lease of plant or machinery avoids tax on the income that arises once the lease moves into its tax-profitable phase. The intended effect is to turn a tax-timing advantage into a permanent loss of tax on a transaction that is commercially profitable.