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HMRC internal manual

Business Leasing Manual

Taxation of leases that are not long funding leases: passing on the benefits: where lessee is liable to tax

The finance lessor doesn’t always benefit from timing gains when all the variables are taken into account. Even where the lessor can afford to make lower charges than a lender, leasing isn’t always better than borrowing for the user of an asset. Where the user is a tax payer they are interested in a ‘net present value’ comparison of the cash flow effects for it of the leasing and borrowing options available. One obvious point is that a tax-paying borrower gets the cash-flow benefit of the capital allowances.