Clampdown on machinery leasing loophole

The government has announced new legislation to close an administrative loophole that saw firms being able to claim double the tax relief officially permitted for the leasing of plant and machinery.

The Exchequer secretary to the Treasury, David Gauke, yesterday told Parliament that rules designed to shut down an ‘aggressive tax avoidance scheme’ were being introduced with immediate effect.
 
Under the scheme, lessees in plant or machinery long-funding leases entered into contrived, circular transactions that involved, over a period of three or four weeks, the sale, leaseback and reacquisition of equipment, with the aim of claiming capital allowances twice on one amount of expenditure.

In a written ministerial statement, Mr Gauke, said the loophole had put ‘hundreds of millions of pounds at risk’. It is believed to have been exploited more than a dozen times by large businesses.

Draft legislation, applying to both new arrangements and those already in existence, is now in operation. It will be introduced in Finance Bill 2011 to amend the Capital Allowances Act 2001, part 2, chapter 6, and to ‘put beyond doubt’ that lessees are entitled only to tax relief up to the actual amount of their expenditure on plant or machinery.

The latest move by the Treasury – which is expected to increase tax receipts by tens of millions from 2011/12, rising over the forecast period – ‘demonstrates that, where there is evidence to justify it, the government is prepared to take swift action and introduce the necessary measures to protect the Exchequer and tackle tax avoidance,’ claimed Mr Gauke.

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