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Corporation tax
Long funding lease income See TM ¶138 For expenditure incurred on or after 9 October 2007, a lessor cannot rely on the long funding lease rules to restrict taxable rental income if the: - lessor is claiming a revenue deduction for the cost of the asset; or - main purpose is to secure a “substantial difference” between the company’s GAAP profit or loss and the taxable profit or loss.
Employer pension contributions See TM ¶159 Provisions will be introduced (effective from 10 October 2007) to ensure that the spreading of large pension contributions cannot be avoided by routing payments through a new company.
Capital allowances Fire safety assets See TM ¶309 Expenditure on building alterations made in response to a notice from a fire authority will, from 6 April 2008 (1 April 2008 for individuals), no longer qualify for capital allowances.
Memo points Relief for expenditure on fire safety equipment (such as fire alarms and sprinkler systems) will continue to be available to all businesses in the usual manner (¶318).
Sale and finance leaseback arrangements See TM ¶336 The sale and finance leaseback arrangements are to be amended for transactions taking place on or after 9 October 2007, as follows: - a UK seller will no longer be able to rely on the sale and finance leaseback limit to restrict his disposal value when the lessee is outside the charge to UK tax (and therefore not affected by the restriction to the revenue deduction (¶166)); and - a sale under a sale and finance leaseback will be treated as a long funding lease (¶483).
Loan relationships Income from shares See TM ¶876 From 9 October 2007 all distribution income (not just dividend income) from shares that fall within the loan relationship regime will be taxable.
Memo points Prior to 9 October 2007, only straightforward dividend income from such shares was taxed as income. Certain schemes have been disclosed to HMRC that exploit these rules by structuring such shares so that they pay out other types of distributions that are not taxed under the current rules. These changes are intended to stop this avoidance.
Hedging exchange movements See TM ¶892 Companies holding shares in non-sterling businesses frequently hedge the exchange risk by borrowing in the same currency. Currently exchange gains or losses are disregarded where they hedge (or “match”) shares in this way. For company accounting periods commencing on or after 1 January 2008, the following changes are to be made to the existing matching regulations: - companies will be allowed to elect to value matched shares at the value of the net foreign currency assets underlying the shareholding, rather than at book value as at present; and - the current rules for identifying which loans are matched with which shares are to be replaced with a more straightforward method.
Memo points 1. Exact details of these provisions are to be published for consultation early in 2008, together with a targeted anti-avoidance rule to prevent abuse. 2. It is intended that more extensive changes are also to be introduced for accounting periods commencing on or after 1 January 2009. Consultation on these changes will start in the first quarter of 2008.
Sale of lessor companies See TM ¶1830 Currently, when a leasing business carried on by companies in partnership is sold to a single company, there is no relief available to the purchaser (in the form of a deduction (¶1825)). This was never the intention of the original legislation and the oversight is to be corrected in the 2008 Finance Bill and will be backdated to apply from 5 December 2005 (the date that the original provisions came into force).
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