Introduction Background Note
32.The Schedule will make changes to Schedule 10 to FA 2006, to ensure that lessors of plant or machinery, whether acting as head lessor or intermediate lessor have parity of treatment for the purposes of the operation of Schedule 10.
33.Schedule 10 to FA 2006 calculates an amount of income by reference to the difference between the balance sheet value of assets owned by the lessor company and their tax written down value. The charge recovers the tax timing advantage derived from a claim to capital allowances.
34.Disclosures revealed that lessor companies had sought to avoid the consequences of Schedule 10 by entering into sale and finance leaseback arrangements so that the lessor company no longer owned the asset subject to a lease but continued to benefit from the availability of capital allowances. Schedule 10 does not take into consideration assets where the lessor does not own the asset so that the sale of the intermediate lessor company would escape the effect of Schedule 10 even though it had continued to benefit from the capital allowances.
35.The Schedule will remove the requirement for the lessor company to own an asset subject to a lease and make provisions for ascertaining a value in respect of an asset whether or not that asset is reflected on the balance sheet of the lessor company. As a result the sale of an intermediate lessor company will attract an appropriate charge.
36.Where the sale and finance leaseback takes place on the same day as the sale of the company there is still a possibility that no charge under Schedule 10 would arise as a consequence of paragraph 40 of Schedule 10. Paragraph 40 removes assets from the calculation of the Schedule 10 charge where the sale of the asset on the relevant day comes within section 228K of CAA. While section 228K applies in principle to a sale and finance leaseback transaction it may in practice give rise to no charge and as a result the sale of the lessor company could still be achieved without tax effect. This opportunity will be blocked by the repeal of paragraph 40.