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HMRC internal manual

Business Leasing Manual

Introduction: why lease: whether to lease or to borrow

Potential lessees have various choices apart from leasing. They could borrow all or part of the money and buy the asset themselves, so getting the benefit of the capital allowances due (assuming the lessee pays tax). One of the factors in the choice of methods of finance is the lessee’s tax position. A lessee who has no current tax liability, or who pays tax at less than the full rate of corporation tax, is more likely to benefit from leasing than one who is taxable at the full rate. But where very expensive assets are leased (‘big ticket’ leasing) even small timing differences can be important.

Working out the pros and cons of leasing over buying is a complex issue and one on which potential lessees often take professional advice, even where tax avoidance is not contemplated. For the most part, from a compliance perspective, the decision does not concern us, even where the decision is influenced by tax considerations: the result simply flows from the correct application of the legislation.

However there are many situations where leasing has been used to avoid tax. These are outlined at BLM01000 onwards and involve both timing advantages and absolute advantages.

Wherever tax avoidance is involved (whether it results in a timing advantage, or an absolute advantage) you should very carefully consider the facts and relevant law and follow the appropriate guidance.

Please contact CTIS (CT&BIT) if you think there is avoidance but cannot find appropriate guidance.