OT21083 - Corporation Tax Ring Fence and Supplementary Charge

Sale and Leaseback

Before 9 March 1999 companies sometimes raised finance by selling an asset and leasing it back. A deduction for the leasing charges would subsequently be claimed within the Corporation Tax ring fence. However, interest is normally only deductible for ring fence purposes if it has been incurred on financing raised for UK upstream oil and gas activities. Section 494AA as inserted by section 100 FA 1999 provides that where a sale and leaseback transaction has occurred, the finance charge element of lease rentals will not be allowable for ring fence CT unless the proceeds from the sale of the asset are applied to finance North Sea activities. Expenditure disallowed is treated as a non-trading debit in respect of a loan relationship of the lessee for that accounting period and will therefore be deductible for non- ring fence CT purposes.