Section 29 Schedule 10: Sale of Lessor Companies Etc - Reforms
Summary
1.Section 29 and Schedule 10 make changes to Schedule 10 to the Finance Act (FA) 2006 to ensure that the Schedule operates fairly.
Details of the Schedule
2.Paragraph 2 makes changes to paragraph 7 of Schedule 10 by introducing in sub-paragraph (9) conditions to be satisfied before sub-paragraph (8)(b) applies. The conditions ensure that sub-paragraph (8)(b) only applies to plant or machinery acquired on or after 5 December 2005 or acquired at any time from a person connected to the company on 5 December.
3.Paragraph 3 inserts new paragraph 13A which sets out the circumstances where there is deemed to be no qualifying change in ownership. There is no qualifying change in ownership if the interest remains the same or the percentage of share capital held by the principal company remains unchanged.
4.Paragraph 4 amends paragraph 17 of Schedule 10 to FA 2006 by amending the condition in sub-paragraph (8) to be satisfied before sub-paragraph (7)(b) of paragraph 17 applies.
5.Paragraph 6 inserts new paragraph 23A so that in circumstances where all of the companies that carried on the business in partnership cease to have a share in the profits or losses of the business and as a consequence the plant or machinery is treated as disposed of for a value equal to its open market value then no amount of income will be treated as received for the purposes of paragraph 23.
6.Paragraph 7 changes the application of paragraph 32 so that it applies only when there is a percentage increase over the whole day and sets the calculation for determining the amount of the expense allocated to the other company as a consequence of a percentage increase.
7.Paragraph 8 makes changes to paragraph 39 of Schedule 10. The changes extend the period over which a loss derived from the expense can be utilised and provide for an increase in the amount of any loss not utilised.
8.Paragraph 9 sets out when the legislation will have effect. Changes made by paragraph 8 allowing extended access to losses derived from the expense will have effect for accounting periods ending on or after 22 April 2009. The other amendments will have effect where the relevant day is on or after 22 April 2009.
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.
