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HMRC internal manual

Business Leasing Manual

Introduction: Lease taxation: Lease not Long Funding Lease: Basis for recognising finance lease income

There is no legislation directly affecting the timing of the taxation of rentals received by finance lessors apart from

  • Part 21 CTA 2010, Part 11A ITA 2007, see BLM70000 onwards, and
  • long funding leases, see BLM20000 onwards.

In contrast to the position for finance lessees it is not possible to derive from GAAP a comprehensive method of allocating rentals to periods of account in computing the lessor’s profits. This is because there are no accounting entries, equivalent to the depreciation of the leased asset in the lessee’s accounts, to give a means of allocating the non-finance charge element of rentals for this purpose. In particular, the treatment of that element as a repayment of what is regarded as a loan to the lessee (complementing the treatment of the lessee under GAAP) does not necessarily bear a direct relationship to the rate at which the lessor enjoys economic benefits under the lease.