Section 614AB: Accountancy rental earnings
813.This section defines “accountancy rental earnings”. It is based on paragraph 21 of Schedule 12 to FA 1997.
814.Part 11A provides that the accountancy rental earnings of a lessor in relation to a lease are, in certain circumstances, to be brought into account for income tax purposes instead of the normal rent from the lease.
815.Subsections (1) and (2) provide that in relation to a lease “accountancy rental earnings” are the highest of the following three figures for a period of account:
the rental earnings (see section 614AC), in relation to the lease, of the lessor;
the rental earnings, in relation to the lease, of a person connected with the lessor; or
the rental earnings in relation to the lease for the purposes of consolidated accounts of the group of which the lessor is a member.
816.The purpose of taking the highest of the three figures is to ensure that the earnings fully reflecting the economic substance of the transaction are taxed. This is especially important when the capital sum which is an essential part of a leasing arrangement within Chapter 2 of Part 11A may be received not by the lessor but by a related party. In such a case it is only by considering the lessor’s position and that of the related party together that the true economic substance of the transaction can be appreciated. In the case of a lessor which is a company, that is likely to be in the consolidated accounts of the group as a whole, or possibly in the accounts of the related party, rather than in those of the lessor company itself.
817.Although most company lessors will be within the charge to corporation tax and thus fall within Part 21 of CTA 2010, these provisions apply to companies which are within the charge to income tax, including in particular non‑UK resident companies that are lessors of land and buildings. Accordingly it is necessary for Part 11A of ITA to deal with lease accounting by a non‑UK resident company and any group of which it is part.
