Clause 46 makes changes to counter avoidance involving the leasing of plant or machinery under a long funding lease. It will ensure that the legislation works as intended, taking into account all relevant payments and receipts in order to arrive at the correct amount of capital allowance for such a lease. The changes will protect the Exchequer from significant loss of tax revenue.
I am sure that it will be helpful for hon. Members if I give some of the context of the changes. A lessee under a long funding lease is entitled to claim capital allowances in respect of leased plant or machinery. The total capital allowances available should equal their actual expenditure on the plant or machinery for use in their business. Some taxpayers have entered into arrangements designed to try to obtain more capital allowances than actual net expenditure on the plant or machinery. The arrangements in question involve payments being received connected to long funding leases, which it is claimed are not taken into account for capital allowances purposes. If that claim is correct and the disposal value at the end of the lease is too low, then consequently the capital allowances are too high.
These types of arrangements came to HMRC’s attention as a result of disclosures under the disclosure of tax avoidance schemes regulations. It is understood that each scheme has been used at least once and the evidence indicates that wider use of the arrangements would put hundreds of millions of pounds of tax at risk. That is why it was necessary to take action to close down these schemes with immediate effect at Budget 2012.
The changes made by clause 46 will ensure that all relevant payments connected with a long funding lease are correctly taken into account to give relief up to the amount of the net expenditure. The changes achieve this by amending the disposal formula that applies to a lessee when a long funding lease ends. That formula will now ensure that the relief to the lessee by way of capital allowances will take into account all relevant payments and receipts.
Following the publication of the Bill on 29 March 2012, HMRC received representations that clause 46 may have unintentional consequences. Discussions with accounting firms representing long funding lessees resulted in identification of two particular sets of circumstances involving commercial transactions where this may be the case. The amendments address those concerns by providing for exclusions for payments in those circumstances. That will ensure that the legislation does not result in unfair taxation.
Clause 46 will ensure that the capital allowances a long funding lessee receives will reflect all the lessee’s relevant expenditure and receipt. That will prevent a significant loss to the Exchequer of several hundreds of millions of pounds.
Amendments made: 26, in clause 46, page 28, line 31, at end insert—
(iii) an initial payment or any other payment made under a relevant superior lease to the person who is the lessor under that lease by the person who is the lessee under that lease, or
(iv) a payment to the seller of the proceeds of a sale of the plant or machinery to which subsection (2FC) applies,’.
Amendment 27, in clause 46, page 28, leave out lines 36 to 38 and insert—
‘(2FB) For the purposes of subsection (2FA)—
“payment” includes the provision of any benefit, the assumption of any liability and any other transfer of money’s worth (and “payable” is to be construed accordingly);
“relevant superior lease” means any lease of the plant or machinery to which the long funding lease mentioned in subsection (1)(a) is inferior.
(2FC) This subsection applies to a sale of the plant or machinery if—
(a) a person has entered into a relevant transaction with another person in respect of the plant or machinery for the purposes of Chapter 17 of this Part (see section 213) and the sale is within section 213(1)(a),
(b) the plant or machinery is within section 216(1)(b) (sale and lease back), and
(c) the conditions in section 227(2) are met.”’.— (Mr Gauke.)