BLM50010 - IFRS 16 leases: Commercial and tax impact of IFRS 16

An IFRS 16 lessee’s accounts will look significantly different to the accounts it prepared under the previous standard IAS 17. If the lessee previously had operating leases then those leases will now be recognised on balance sheet.

The biggest change will be in the treatment of property leases. Under IAS 17 most property leases would have been operating leases with the accrued rentals going through the profit and loss account. Under IFRS 16 all property leases will be on balance sheet. It is unlikely that property leases will be exempt. Given that virtually all groups which adopt IFRS 16 will lease properties, the accounting change will have a wide impact across all sectors.

Many plant and machinery leases will have already been accounted for as finance leases given the risks and rewards of ownership was with the lessee.

The Schedule 14 FA 2019 changes were designed to ensure that there is no change to how a lessee is taxed under IFRS 16 compared to the previous standard or FRS 102, which maintains the distinction between on and off balance sheet leasing. The only difference for tax should be timing differences arising from the differences in how lessees under operating leases and right-of-use leases account for the cash rentals. If you become aware of any situation where a lessee is accounting for its leases under IFRS 16 and there is an unintended tax consequence then please contact BAI.