Corporation Tax Review

The long-awaited and much debated British government plans for changes to the tax
treatment of leasing, have finally been published. Reform of the present
system was first proposed in August 2003 with a consultation document being
published in December last year.

The reforms are intended to ensure that leasing decisions are taken for
commercial rather than tax reasons and will remove a distortion in the
present system caused by the differing tax treatment of finance from
different sources by aligning it with that of other forms of finance. The
government intends to implement its proposals in the 2006 Budget. Existing
leases will not be affected.

“This is very good news for the type of leases used by BVRLA Members,” says
John Lewis, the BVRLA’s Director General, “And is something that we have
been lobbying hard for. The government’s original proposals would have had a
severe impact on the industry by transferring capital allowances to the
lessee which would have hit monthly rentals hard. However, robust analysis
by the Inland Revenue demonstrated very clearly that in our sector, the
effect of the lessors’ allowances were being fully passed on in the form of
>lower rentals to customers. We’re delighted that a lot of hard work has paid
off and customers will benefit through maintaining lower rentals while the
leasing industry administers the allowances. Had the original proposals gone
through there would have been mayhem in the sector as end user companies
struggled to keep up with the legislation and claim the allowances.”

“Rental customers would also have been badly affected. Had the original
proposals not been modified the short term rental sector would have seen its
funding costs increase and with no consequent claims for allowances by
renters being available, the overall effect would have been an increase in
rates. Hardly good for the industry or its customers, 60% of whom are
corporates.”