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HMRC internal manual

Business Leasing Manual

From
HM Revenue & Customs
Updated
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Taxation of leases that are not long funding leases: How tax advantages arise: timing differences - lender, a worked example - part 3 of 4

By contrast to the tax consequences for the finance lessor (see BLM30210), where an actual loan is made the lender’s tax computation will look something like this on similar assumptions:

  Year 1 Year 2 Year 3 Year 4 Year 5 Totals
             
Interest receivable 72 56 40 24 8 200
Less interest payable 58 45 32 19 6 160
Gross profit 14 11 8 5 2 40
Less other expenses 8 4 4 4   20
Taxable profit 6 7 4 1 2 20
Tax paid at 30% 2 2 1   1 7

In both cases

  • the timing of receipts and payments is identical
  • the same amount of tax is due from both the lessor and the lender (£7 in each case)

but the tax timing is quite different.