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HMRC internal manual

Business Leasing Manual

‘Income-into-capital’ schemes and back loaded leases: Introduction to back-loaded leases: comparison of tax and commercial profit

The table below summarises the net profit from a finance lease for tax and accountancy purposes. The table shows receipts at the top, then deductions and finally the profit.

Interest receivable Interest element of rents plus capital element of rents
(less interest payable) (less interest payable)
(less other expenses) (less other expenses)
  (less capital allowances)
Commercial profit Taxable profit

The key difference is that the capital repayment element is not part of the commercial earnings. But unless the lease is a long funding lease (in which case Part 21 CTA of 2010, does not apply) it is part of the tax earnings, although there may be a compensating deduction for capital allowances depending on the nature of the asset.