HMRC internal manual

Business Leasing Manual

BLM14010 - Lease accounting: finance lease accounting: finance lessors: finance income

You should check the other guidance available on GOV.UK from HMRC as Brexit updates to those pages are being prioritised before manuals.

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).

FRS 102 Section 20.19 sets out the method for the subsequent measurement of finance leases by the lessor:

“The recognition of finance income shall be based on a pattern reflecting a constant periodic rate of return on the lessor’s net investment in the finance lease. Lease payments relating to the period, excluding costs for services, are applied against the gross investment in the lease to reduce both the principal and the unearned finance income. If there is an indication that the estimated unguaranteed residual value used in computing the lessor’s gross investment in the lease has changed significantly, the income allocation over the lease term is revised, and any reduction in respect of amounts accrued is recognised immediately in profit or loss”.