Finance Act 2006

Generally accepted accounting standards.

61.— (1) The Principal Act is amended—

(a) in section 76A(2) by substituting “Schedule 17A shall apply to a company as respects any matter related to the computation of income of the company where as respects that matter” for “Schedule 17A shall apply to a company where”,

(b) by inserting the following after section 76C:

“Computation of income from finance leases.

76D.— (1) In this section ‘finance lease’ means a lease which, under generally accepted accounting practice, falls to be treated as a finance lease.

(2) Notwithstanding section 76A and subject to section 80A, for the purposes of computing income of a company from a trade of leasing, income of a lessor from a finance lease—

(a) shall not be the amount of income from the lease computed in accordance with generally accepted accounting practice, and

(b) shall be computed, subject to the provisions of the Corporation Tax Acts other than section 76A, by treating—

(i) lease payments receivable in respect of the lease as trading receipts of the trade, and

(ii) as trading expenses of the trade any disbursements or expenses laid out or expended for the purposes of earning those lease payments.”,

(c) in section 243(6), by substituting the following for paragraph (a):

“(a) the payment is not ultimately borne by the company, or

(i) in the case of any royalty or other sum in respect of the user of a patent, the payment is in respect of capital expenditure, and

(ii) in any other case, the payment is charged to capital,

or”,

and

(d) in Schedule 17A—

(i) in paragraph 2—

(I) in subparagraph (2) by substituting the following for clauses (b) and (c):

“(b) Notwithstanding clause (a), an amount (in this subparagraph referred to as the ‘relevant amount’) which is treated under clause (a) as a trading receipt for an accounting period (in this clause referred to as the ‘relevant accounting period’) shall not be taken into account in computing the profits or gains for the purposes of Case I or II of Schedule D of the company for that accounting period but instead, subject to clause (c), a part of the relevant amount shall be so taken into account for each accounting period falling wholly or partly into the period of 5 years beginning at the commencement of the relevant accounting period. The part of the relevant amount to be so taken into account for any such accounting period shall be such amount as bears to the relevant amount the same proportion as the length of the accounting period, or the part of the accounting period falling into the period of 5 years, bears to 5 years.

(c) Where any accounting period referred to in clause (b) is the last accounting period in which a company carried on a trade or profession, then such part of the relevant amount shall be taken into account for that accounting period as is required to ensure that the whole of that amount is accounted for.”,

(II) in subparagraph (3), by substituting the following for clauses (b) and (c):

“(b) Notwithstanding clause (a), an amount (in this subparagraph referred to as the ‘relevant amount’) which is treated under clause (a) as a deductible trading expense for an accounting period (in this clause referred to as the ‘relevant accounting period’) shall not be taken into account in computing the profits or gains for the purposes of Case I or II of Schedule D of the company for that accounting period but instead, subject to clause (c), a part of the relevant amount shall be so taken into account for each accounting period falling wholly or partly into the period of 5 years beginning at the commencement of the relevant accounting period. The part of the relevant amount to be so taken into account for any such accounting period shall be such amount as bears to the relevant amount the same proportion as the length of the accounting period, or the part of the accounting period falling into the period of 5 years, bears to 5 years.

(c) Where any accounting period referred to in clause (b) is the last accounting period in which a company carried on a trade or profession, then such part of the relevant amount shall be taken into account for that accounting period as is required to ensure that the whole of that amount is accounted for.”,

and

(III) in subparagraph (4), by substituting “paragraph 3 or 4” for “paragraph 4”,

(ii) in paragraph 3 by adding the following after subparagraph (3):

“(4) A debt shall not be taken into account for the purposes of paragraph 4 if it may be taken into account for the purposes of this paragraph.”,

(iii) in paragraph 4—

(I) in subparagraph (2), by substituting the following for clauses (b) and (c):

“(b) Notwithstanding clause (a), an amount (in this subparagraph referred to as the ‘relevant amount’) which is treated under clause (a) as a trading receipt for an accounting period (in this clause referred to as the ‘relevant accounting period’) shall not be taken into account in computing the profits or gains for the purposes of Case I or II of Schedule D of the company for that accounting period but instead, subject to clause (c), a part of the relevant amount shall be so taken into account for each accounting period falling wholly or partly into the period of 5 years beginning at the commencement of the relevant accounting period. The part of the relevant amount to be so taken into account for any such accounting period shall be such amount as bears to the relevant amount the same proportion as the length of the accounting period, or the part of the accounting period falling into the period of 5 years, bears to 5 years.

(c) Where any accounting period referred to in clause (b) is the last accounting period in which a company carried on a trade or profession, then such part of the relevant amount shall be taken into account for that accounting period as is required to ensure that the whole of that amount is accounted for.”,

(II) in subparagraph (3), by substituting the following for clauses (b) and (c):

“(b) Notwithstanding clause (a), an amount (in this subparagraph referred to as the ‘relevant amount’) which is treated under clause (a) as a deductible trading expense for an accounting period (in this clause referred to as the ‘relevant accounting period’) shall not be taken into account in computing the profits or gains for the purposes of Case I or II of Schedule D of the company for that accounting period, but instead, subject to clause (c), a part of the relevant amount shall be so taken into account for each accounting period falling wholly or partly into the period of 5 years beginning at the commencement of the relevant accounting period. The part of the relevant amount to be so taken into account for any such accounting period shall be such amount as bears to the relevant amount the same proportion as the length of the accounting period, or the part of the accounting period falling into the period of 5 years, bears to 5 years.

(c) Where any accounting period referred to in clause (b) is the last accounting period in which a company carried on a trade or profession, then such part of the relevant amount shall be taken into account for that accounting period as is required to ensure that the whole of that amount is accounted for.”,

(III) by substituting the following for subparagraph (5):

“(5) A loss to which this subparagraph applies (in this subparagraph referred to as the ‘relevant loss’), which would otherwise be taken into account in computing profits or gains or losses of a company for the purposes of Case I or II of Schedule D for an accounting period (in this subparagraph referred to as the ‘relevant accounting period’), shall not be so taken into account but instead—

(a) (i) a part of the relevant loss shall be so taken into account for each accounting period falling wholly or partly into the period of 5 years beginning at the commencement of the relevant accounting period, and

(ii) the part of the relevant loss to be so taken into account for any such accounting period to which this clause applies shall be such amount as bears to the relevant loss the same proportion as the length of the accounting period, or the part of the accounting period falling into the period of 5 years, bears to 5 years,

and

(b) notwithstanding clause (a), where any accounting period referred to in that clause is the last accounting period in which a company carried on a trade or profession, then such part, of the amount referred to in that clause, shall be taken into account for that accounting period as is required to ensure that the whole of that amount is accounted for.”,

and

(IV) in subparagraph (6) by substituting “first, second and third accounting periods” for “first accounting period”.

(2) This section shall be deemed to have applied as respects any period of account beginning on or after 1 January 2005.