It is unlikely that the Courts would reject the use of FRS5 as a satisfactory means of recognising the time when income arise for tax purposes simply because it may disregard the legal form of the transaction. It would be for the Commissioners to decide as a question of fact, having regard to accountancy evidence, whether the treatment actually adopted by the trader in his commercial accounts was commercially acceptable.
Furthermore it remains open for the courts to hold as a matter
of law that the result arising out of the application to particular
facts has sufficient regard to those facts (as in the Anaconda
American Brass case cited by the Master of the Rolls in Threlfall v
Jones and Gallagher v Jones [1993] 66TC77 at page 116). But it is
unlikely that the application of the standard explicitly aimed at
reflecting the substance of transactions would not adequately
reflect the facts.
The application of FRS5 has a significant impact on company
reporting. Inspectors may find that in many instances the Case I
treatment may well follow the revised accounting treatment, but
that is not inevitably so. In some cases the tax treatment of
transactions following the legal form of those transactions is
significantly different from the accounting treatment.
There is specific guidance on the taxation of private finance
initiative contracts, PFI, at
BIM64000. The tax treatment of many sale
and leaseback transactions is dealt with in the Finance Leasing
Manual.
