Income Tax Act 2007 section 614BA

Purposes of this Chapter

Section 614BA sets out the two main purposes of Chapter 2, which deals with finance leases where the return to the lessor takes a capital rather than income form.

• The first purpose is to charge the person holding the lessor's interest under the lease to income tax on amounts determined by reference to the income return recognised under generally accepted accounting practice (GAAP) from 26 November 1996 onwards.
• The income amounts are determined by looking at the substance of the arrangement as a whole, including the position as between connected persons or within a group of companies, as reflected in individual or consolidated group accounts.
• The second purpose is to recover capital expenditure reliefs — meaning any reliefs, allowances or deductions already given for capital expenditure on the leased asset — where a sum that is not rent falls due under the arrangement.
• In effect, the chapter substitutes the GAAP-based measure of income for the ordinary tax measure where the GAAP figure is larger, and claws back capital allowances when a capital sum is received.