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HMRC internal manual

Business Leasing Manual

Taxation of leases that are not long funding leases: finance lessees: pre-use rentals: tax treatment of finance charge element

The accounting treatment of the finance charge (‘interest’) element (which will often be the whole of the payment) should be followed for tax purposes if

  • it is charged against commercial profits in the period in which it is incurred, and
  • that treatment is in accordance with GAAP.

The finance charge paid in the pre-primary period will also sometimes be capitalised. The amount capitalised then forms part of the cost of the rights to be written off under GAAP. The deduction for tax purposes normally follows the accounts treatment when that write off is made.

See also the guidance at BLM20160 and BLM25050.