The changes to UK tax brought about by changes to lease accounting rules will not be an attempt to raise net tax revenue from lessors, according to a representative of UK tax authority Her Majesty’s Revenue and Customs (HMRC).
At the KPMG Leasing and Asset finance forum in Mayfair, London yesterday, Paul Hindley, leasing policy specialist, corporation tax, international and stamps at HMRC, addressed leasing and asset finance professionals regarding HMRC’s stance on the forthcoming accounting changes and the resulting tax burden on the leasing industry.
IFRS16 Accounting for Leases will become effective 1 January 2019, and will be first piece of leasing legislation to be introduced since 2012.
Hindley said: “We’re not seeking to raise revenue… [we want] the smoothest transition possible to accommodate changes.”
The changes to lease accounting rules are part of a drive towards simplification, and a continuing evolution to fit the post-2008 leasing landscape.
IFRS16 removes the division in classification between finance and operating leases, and will inject anti-avoidance rules relating to the sale and finance of leasebacks.
While noting that businesses argue that tighter anti-avoidance rules may bring uncertainty, Hindley argued they were needed.
“We have to have some protection against people who wish to abuse the system,” he said.
There are 7 government proposals which seek to amend existing legislation and remove unnecessary complexity.
These proposals developed from a series of meetings between HMRC and meetings with lessors in 2013-14, and are set to be published sometime after 13 July.
IFRS16 was also developed to make tax closer to accounting entries. The changes will mean that lessors would only be taxed on the finance elements of lease rentals and any profit or loss on sale of the leased asset.
However, the appointment of a new prime minister and on-going department reshuffles have cast doubt on the timeline of the measures. “We may get new ministers and have to resubmit,” Hindley warned.
Unless the measures are published by the time Parliament closes for recess on 21 July, they will be published in September. This will move the consultation period to November.
However, Hindley was confident that the provisions would pass, and said that a formal consultation would be announced at Budget 2017, in April of next year.
Early adopters will not benefit from any changes, and should continue with current tax codes until legislation comes into effect in 2019 with the repeal of Section 53 FA 2011.