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HMRC internal manual

Business Leasing Manual

HM Revenue & Customs
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Taxation of leases that are not long funding leases: finance lessors: reinvestment income: interest earned in periods ending after 31 March 1996

For periods ending after 31 March 1996, when the loan relationships legislation will apply to a lessor within the charge to corporation tax, the interest from the investment of these surplus cash balances should be regarded as satisfying the test in CTA09/S298(1) (whether creditor relationship an integral part of the trade) and therefore should be regarded as a trading receipt. Its treatment as a trading receipt (rather than under, say, Case III of Schedule D) will not make any difference to the time when it is recognised for tax purposes. Either way that will be when it is recognised in the accounts (drawn up under an ‘authorised accounting method’). But its treatment as a constituent of trading profit or loss rather than as a non-trading surplus or deficit could be material on the facts of a particular case.