Finance Act 2006

38 (1) This paragraph applies if— U.K.

(a) a company is treated as incurring an expense under any provision of this Schedule,

(b) the expense arises directly or indirectly in consequence of, or otherwise in connection with, any arrangements, and

(c) the main purpose, or one of the main purposes, of the arrangements is to secure that the company is treated as incurring the expense.

(2) The following restrictions apply in respect of so much of any loss incurred by the company as derives from the expense (“the restricted part of the loss”).

(3) Apart from by way of set off against any relevant leasing income, relief is not to be given to the company under any relevant loss relief provision in respect of the restricted part of the loss.

(4) If the business carried on by the company is a trade, relief is not to be given to the company under section 393A(1) of ICTA in respect of the restricted part of the loss.

(5) The restricted part of the loss is not available for set off by way of group relief in accordance with section 403 of ICTA.

(6) For the purpose of determining how much of a loss derives from the expense, the loss is to be calculated on the basis that the expense is the final amount to be deducted.

(7) In this paragraph “arrangements” includes any agreement, understanding, scheme, transaction or series of transactions—

(a) whether or not legally enforceable, and

(b) whether or not the company is a party to the arrangements.

(8) In this paragraph “relevant leasing income” means any income deriving from any plant or machinery lease—

(a) which is not an excluded lease of background plant or machinery for a building, and

(b) which is entered into before the day on which the company is treated as incurring the expense.

(9) In this paragraph “relevant loss relief provision” means any of the following provisions of ICTA—

(a) section 392A (Schedule A losses),

(b) section 392B (losses from overseas property businesses),

(c) section 393 (trade losses),

(d) section 396 (Case VI losses).