Corporation Tax Act 2010 section 894A

Consideration for taking over payment obligations as lessee treated as income

Section 894A ensures that where a company receives consideration for agreeing to take over another party's lease obligations on plant or machinery, that consideration is treated as taxable income for corporation tax purposes.

• Where a company (C) agrees to take over another person's (D's) obligations under a plant or machinery lease, and receives a payment or benefit as consideration for doing so, that consideration is taxed as income in the period C assumes the obligations.
• The income charge does not apply to the extent the consideration is already subject to tax as income, brought into account in calculating taxable income, or treated as a disposal receipt under the capital allowances rules.
• The method by which the obligations are taken over is irrelevant — it could be by assignment, novation, contract variation, operation of law, or any other means — and the definitions of key terms such as "payment" and "arrangements" are drawn very broadly.
• This section takes priority over other tax priority rules (such as the loan relationships rules or double taxation arrangement provisions), with the sole exception of the General Anti-Abuse Rule in Part 5 of the Finance Act 2013.