‘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.