Introduction Background Note
9.This Schedule makes changes to Schedule 10 to FA 2006 to ensure that it operates fairly, particularly in the context of a leasing business carried on by a company owned by a consortium or carried on by companies in partnership. In addition it extends the period over which the buying group can access losses derived from the expense and maintains the value of any unutilised loss over a similar period.
10.Schedule 10 was introduced in response to a well-established pattern of avoidance involving the sale of a lessor company with deferred tax profits. Groups sought to turn the temporary tax timing advantage gleaned from a claim to capital allowances into a permanent deferral by selling lessor companies with deferred tax profits to structural loss-makers who were then able to utilise losses to reduce the taxable profits of the lessor company.
11.The legislation is triggered when a lessor company changes hands. A charge and matching relief are calculated to reflect the tax timing advantage gained by a claim to capital allowances. The charge affects the selling group and the relief benefits the buying group.
12.The legislation has operated successfully but it has become clear that where there have been more complex transactions involving businesses carried on by companies in partnership and businesses carried on by companies owned by consortia it has had unexpected results.
13.The changes introduced here ensure that no Schedule 10 charge arises when a partnership is dissolved or a consortium company is transferred intra-group and that a company carrying on a leasing business in partnership that increases its interest in the business is allocated an appropriate amount of relief.
14.Changes to extend the period over which a loss derived from the expense is available to set against profits of the purchaser’s wider group along with measures to ensure it retains its value over this period have been introduced in response to discussions with the leasing industry. These changes will benefit buying groups that are temporarily loss-making in the current economic downturn.