Introduction Background Note
32.This legislation addresses two types of avoidance relating to the taxation of leasing of plant or machinery as disclosed to HMRC as briefly described in the summary above.
33.For the first scheme the avoidance is countered by, in broad terms, limiting the amount on which capital allowances may be claimed to the present value of the amounts that it is reasonable to expect will be brought into account as income in connection with the lease. This includes rents and, for example, amounts treated as income under section 785B of ICTA, but excludes any capital allowances disposal receipts plus the present value of the residual value at the end of the lease less any amount of rental rebate.
34.Where the avoidance in the first scheme is centred on or includes the amount of deduction claimed for rental rebate the legislation counters this. In broad terms, the effect of the rules is that the amount of a rental rebate which may be claimed as a deduction in computing profits is limited to the amount receivable in connection with the lease that has been brought into account in computing the lessor’s income. In calculating this amount, however, the finance charge element of rentals paid under a finance lease is excluded, as are any elements that represent charges for service or tax (section 60A(1) and (4) of CTA 2009).
35.For the second scheme, the legislation addresses the avoidance by ensuring that the disposal value for capital allowance purposes at the time that the lessor disposes of the leased assets, or otherwise ceases to be within the charge to tax in respect of that activity, is computed as if the arrangements had not been entered into.