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Commentary

B5.416 Leases—anti-avoidance—income into capital schemes and back-loaded leases


Business tax

There are provisions intended to counter two categories of tax avoidance using leasing:

  1. Ìý

    (i)ÌýÌýÌýÌý income into capital schemes (dealt with under CTA 2010, Pt 21, Ch 2 (ss 899–924) and ITA 2007, Pt 11A, Ch 2 (ss 614B–614BY)); and

  2. Ìý

    (ii)ÌýÌýÌýÌý back-loaded leases (dealt with under CTA 2010, Pt 21, Ch 3 (ss 925–929) and ITA 2007, Pt 11A, Ch 3 (ss 614C–614CD))

In both cases, the provisions operate by treating the minimum taxable earnings (rental income) as being no less than the income recognised in the lessor's commercial accounts.

The provisions are explained in some detail in HMRC Business Leasing Manual1. The rest of this article contains a brief outline of the rules.

Income into capital schemes

The legislation2 countering income into capital schemes deals with variations3 on the following arrangements:

  1. Ìý

    (a)ÌýÌýÌýÌý rentals under the finance lease are set low in the early years of the lease; and

  2. Ìý

    (b)ÌýÌýÌýÌý at the end of the desired loan period, the lessee has an

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