BLM31205 - The tax benefits of operating leasing: operating leases that function as loans: introduction
This manual is being updated to reflect FRS 102 (2024 amendments). For guidance on the tax treatment of accounts prepared under IFRS 16 or the revised FRS 102, please refer to pages within the BLM50000 chapter.
Finance leasing cash flows are predictable and lend themselves ideally to computer analysis using net present value analysis in one form or another, see BLM30400.
In contrast, a typical operating lessor has to make normal
business judgments - how often will they hire out the asset over its life, what
charges will the market bear in the future and how fast will the asset wear out
or become obsolete? In such circumstances a net present value analysis is not a
great deal of help. See BLM11215 onwards
for more on operating leases generally.
However, in accountancy terms an operating lease is simply a lease that is not a finance lease and, in the right circumstances, the rentals can be calculated in much the same way as they can for a finance lease, see BLM31210.