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HMRC internal manual

Business Leasing Manual

HM Revenue & Customs
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Introduction: Lease taxation: Lease not Long Funding Lease: General principles for recognising finance lease income

Where the lease is not a long funding lease (‘LFL’), the following general principles should be borne in mind in connection with the timing of a finance lessor’s rental income:

  • there is no principle of tax law which requires symmetry between lessor and lessee in the timing of rentals;
  • where the lessor’s rentals are chargeable as trading income the rentals should normally all be recognised over the primary period (BLM00620) of the lease (even if the lessee’s rental payments would be recognised over a longer period) since normally the lessor’s economic stake in the transaction virtually comes to an end at the conclusion of the primary period of the lease;
  • you should apply whatever method of recognising rental income for tax purposes is in use to all finance leases written by the same lessor and by connected lessors, especially other leasing companies in the same group; in particular, you should resist attempts to adopt different methods of recognition for leases with different rental profiles (whether flat-rate, front-end loaded or back-end loaded).