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HMRC internal manual

Business Leasing Manual

‘Income-into-capital’ schemes and back loaded leases: Definition of a Chapter 2 of Part 21 of CTA 2010 lease: computational effects

A Chapter 2 of Part 21 of CTA 2010 lease is subject to two principal computational effects under Part 21. These are summarised briefly below but are described in more detail in BLM70801 (accountancy measure of rentals) and BLM73001 (capital allowances).

The first computational effect is that, in common with leases to which Chapter 3 of Part 21 apply, the accountancy rental earnings from the lease (the ‘interest’ on the ‘loan’ described as ‘gross earnings’ from the lease under SSAP 21, and described as ‘finance income’ in FRS101, FRs102 and in IFRS) are recognised for tax for any period of account in which they exceed the rent taxable apart from Part 21. This is subject to provisions intended to ensure that ultimately the same sums are not brought into account for tax more than once.

The second computational effect is that it is not possible to side-step capital allowances balancing adjustments on exit from a Chapter 2 lease by arrangements to dispose of the leased asset indirectly. These rules do not apply to leases within Chapter 3.