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HMRC internal manual

Business Leasing Manual

Taxation of leases that are not long funding leases: finance lessees: taxation generally: rents deductible as revenue expenditure - order in which other statutory rules are applied

In certain circumstances rentals which would otherwise be allowable are restricted by statute.

One common example now found at CTA09/S56-58, applies a restriction for companies to the allowable deductions for the rental of cars, subject to certain exceptions (see BIM47725). There is a corresponding provision for individuals at s48 ITTOIA 2005. Those sections as currently written apply from 1 April 2009 for companies and 6 April 2009 for individuals.

Leases entered into before 1 April 2009, or 6 April 2009

Before these dates ICTA88/S578A, and s48 ITTOIA as previously written contained similar restrictions, but they were directly linked to cost with a ceiling being applied to deductions for the rental of cars costing more than £12,000 (see BIM47715).

Sale and lease-backs

Another such restriction, this time in the context of a sale and lease-back, is at CTA10/S838 and S839 for corporation tax purposes, and ITA2007 Part 12A for income and capital gains tax purposes. For accounting periods ending before 1 April 2010 (corporation tax), and tax years 2009-10 and earlier (income and capital gains tax) the relevant legislation was at ICTA88/S779 to S785 - see BIM61200 and BIM61300.Where statutory provisions of this nature apply, any adjustments necessary to bring the deductions into line with GAAP should be made as a first step. Any further adjustment required under the statutory provision should then be made to the rentals allocated to the period of account under GAAP.