Overview
803.This Schedule provides for the rewriting of Schedule 12 to FA 1997.
804.Schedule 12 to FA 1997 has effect for both corporation tax purposes and income tax purposes. In accordance with the principle of splitting such provisions into separate income tax provisions in income tax rewrite Acts and corporation tax provisions in corporation tax rewrite Acts, Schedule 12 is rewritten for corporation tax purposes as Part 21 of CTA 2010.
805.Part 1 of this Schedule inserts a new Part 11A of ITA to deal with the income tax aspects of the source legislation and Part 2 inserts a new section 37A of TCGA to deal with its chargeable gains aspects.
806.Schedule 12 to FA 1997 was introduced to deal with two finance leasing arrangements. Schedule 12 achieves its aims by aligning the tax treatment of the return in respect of finance leases and loans more closely with the commercial accounting treatment.
807.Part 1 of Schedule 12 to FA 1997 (rewritten in Chapter 2 of the new Part 11A of ITA) counters tax avoidance by finance lessors trying to turn some of their lease rental income into capital receipts (taxed later and at lower effective rates, if at all). It ensures that any part of the capital receipt which is recognised as return on investment under GAAP is brought into account for tax purposes as income.
808.Part 2 of Schedule 12 to FA 1997 (rewritten in Chapter 3 of the new Part 11A of ITA) deals with a possible deferral of tax liability by means of leases under which rentals are concentrated towards the end of the lease term. But for the provisions of Schedule 12, rental income in the case of such a finance lease could be recognised for tax purposes later than it is recognised in accordance with GAAP.
