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HMRC internal manual

Business Leasing Manual

From
HM Revenue & Customs
Updated
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Defining long funding leases: election: following the accounts: introduction

During the consultation process prior to the introduction of the rules for taxing long funding leases, lessors asked whether they could elect to be taxed on the basis of figures in the accounts. The election does not allow that as such, but

  • the rules for taxing long funding finance leases follow GAAP, and
  • the rules for taxing long funding operating leases have significant similarities to accounting treatment and in some circumstances should produce the same result.

It follows that in some circumstances the figures that are used in the accounts will be the same as those that would be used if the strict statutory procedure were followed.

Where a lessor asks whether the figures in the accounts may be followed you should apply the following guidance.

In this context ‘following the accounts’ does not mean that accounts may be followed for all purposes, but that the profits from long funding leases may be based on the figures in the accounts. This means, for example, that

  • depreciation of non-leased assets (and assets that may be leased but to which the election does not apply) should be dealt with in the normal way
  • entertaining expenditure should be added back
  • impairment provisions in respect of the value of the asset should be added back.