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HMRC internal manual

Business Leasing Manual

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HM Revenue & Customs
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‘Income-into-capital’ schemes and back loaded leases: Definition of a Chapter 2 of Part 21 CTA 2010 lease: Condition: finance lease accounting requirement

The condition that the lease (viewed together with surrounding arrangements) must be treated as a finance lease will be satisfied, even if it is not presented as such in the lessor’s accounts, in one or more of the following circumstances:

  • it is treated as a loan rather than a finance lease in the lessor’s accounts - see BLM70440;
  • it is treated as an operating lease in the lessor’s accounts correctly drawn up in accordance with foreign accounting practice but would have been treated as a finance lease (or loan) if those accounts had been drawn up in accordance with GAAP - see BLM70445 (note that GAAP is defined in CTA10/S1127, see BLM20215);
  • it is treated as an operating lease in the accounts of an unincorporated lessor but would have been treated as a finance lease (or loan) if those accounts had been drawn up in accordance with GAAP - see BLM70465;
  • it is in fact treated as an operating lease in the lessor’s accounts drawn up by reference to GAAP but it ought to have been treated in those accounts as a finance lease (or loan) - see BLM70470;
  • it is treated as an operating lease in the lessor’s accounts (whether correctly and in accordance with GAAP or not) but in the consolidated group accounts it is correctly treated in accordance with GAAP as a finance lease (or loan) - see BLM70475;
  • it is treated as an operating lease in a corporate lessor’s accounts and there is no requirement to prepare consolidated accounts in accordance with GAAP but, if (on the assumption that the lessor and companies connected with it were incorporated in the UK) consolidated accounts in accordance with GAAP would have been required, the lease would have been treated as a finance lease (or loan) - see BLM70485;
  • it is treated as an operating lease in a corporate lessor’s accounts (whether correctly and in accordance with GAAP or not) and in the consolidated group accounts but it ought to have been treated as a finance lease (or loan) in the consolidated group accounts if they had been correctly drawn up in accordance with GAAP - see BLM70505;
  • it is treated as an operating lease in the lessor’s accounts but it is treated as a finance lease (or loan) in the accounts of a connected person or would be so treated if those accounts were correctly drawn up in accordance with GAAP - see BLM70510.