Schedule 10
Finance Bill
6:45 pm
Mark Hoban (Shadow Minister, Treasury; Fareham, Conservative)
I return to what I was saying on schedule 10 and what the problem was—leasing companies that typically show a period of tax loss at the beginning of the lease. As tax deductions exceed the taxable rental income and this timing benefit reverses subsequent periods as the tax deductions reduce compared to the taxable rental income, selling the company to a loss-making group before the period of taxable profits begins enables the future, or deferred tax liability that would otherwise arise, to be avoided. The consequence was that the legislation was not sufficient to cover complex transactions involving leasing businesses by companies who are run in partnerships or consortiums. I understand that the provisions in schedule 10 now address some of those problems. That is confirmed by the Budget note:
“Changes will be made to ensure that companies carrying on a leasing business in partnership benefit from the full amount of relief due as a consequence of an increase in their interest in the business and to prevent a charge being calculated when a partnership is dissolved or ceases to carry on a leasing business. Where there is an intra-group transfer involving a lessor company owned by a consortium the measure similarly prevents the calculation of a charge.”
A number of issues have been raised on this. The initial representations suggest that the new rules proposed in schedule 10 would make it more difficult to sell a leasing business to a company with no UK tax capacity, such as an infrastructure fund or a European trader with no UK operations. Since the proposals in the Bill might impede parts of the leasing sector in this country, would it not be better to have some sort of tax avoidance motive test, rather than the proposals set out in schedule 10? That might help, encourage the leasing industry and avoid the suggestion that it would be difficult to sell some leasing companies to companies with no UK tax capacity.