Introduction Overview Overview Section 900: Purposes of this Chapter
2669.This section sets out the main purposes of Chapter 2. It is based on paragraph 1(2) of Schedule 12 to FA 1997.
2670.The first purpose (in subsections (2) to (4)) is to substitute for the ordinary tax measure of income from the lease the amount recognised in accordance with GAAP where this is larger than the normal measure (see section 905).
2671.Under GAAP, part of the sum mentioned in section 899(3) is recognised as annual income over the course of the lease and thus taken into account in computing commercial profits. Income is recognised in this way because in substance the lease is tantamount to a loan, the interest on which needs to be matched with the lessor’s own borrowing costs in order properly to reflect the lessor’s profit.
2672.The income recognised in accordance with GAAP may be that shown in consolidated accounts of the lessor’s group or in those of a company which is a “connected person” of the lessor. The reason for looking wider than the lessor (see subsection (4)) is that the full earnings from the lease may only be shown in, say, the accounts of the parent or in the consolidated group results.
2673.The second purpose of Chapter 2 (in subsections (5) and (6)) is to recover appropriately any tax reliefs for capital expenditure already given.