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HMRC internal manual

Business Leasing Manual

From
HM Revenue & Customs
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Lease accounting: finance lease accounting: finance lessors: gross earnings (general)

A finance lessor’s commercial income (the ‘gross earnings’) shown by its accounts is merely the ‘interest’ on the ’loan’ (as in the case of any lender).

A lessor’s ‘gross earnings’ (the commercial equivalent of interest) are defined in paragraph 28 of SSAP 21 as the lessor’s gross finance income over the lease term, representing the difference between his gross investment in the lease and the cost of the leased asset (and less any grants receivable towards the purchase or use of the asset).

IAS 17 does not define gross earnings but takes a similar approach.

FRS102 also does not define gross earnings.

A finance lessor must allocate his gross earnings over the period of the lease in a particular way. SSAP21 is different to FRS102 and IFRS in this regard. The methodology is briefly set out in BLM14015 onwards. If you have any doubts about the methodology being used, consult your advisory accountant.