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HMRC internal manual

Business Leasing Manual

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HM Revenue & Customs
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‘Income-into-capital’ schemes and back loaded leases: Introduction to 'income-into-capital' schemes: Capital allowances overview

The rules for recognising earnings for tax are the same for both Chapter 2 and Chapter 3 of Part 21 CTA 2010. An important practical consideration was that once the transitional period was over, the targeting rules for Chapter 2 were no longer relevant for the purposes of applying the new income recognition rules. If Chapter 2’s conditions are not met for some reason, Chapter 3 always ensures that earnings cannot be less than the commercial measure.

Chapter 2 rules nevertheless remain relevant for the purpose of catching and dealing with attempts to avoid capital allowances disposal adjustments. Schemes intended to turn income into capital are also countered by changes in the capital allowances rules. Allowances are not due for assets let under new leases of this kind and allowances due under existing leases are subject to normal disposal computations, even if an indirect disposal method is used. See BLM70220.