BLM37020 - Taxation of leases that
are not long funding leases: legal expenses: incidental to creation
of lease - revenue argument
There are two different arguments for regarding expenses
incidental to the creation of the lease itself as revenue
expenditure. The simpler, and more radical, of the two arguments
for regarding the expense as revenue takes this 'economic
substance' approach at face value would be that
- a finance leasing business is in
substance, if not in form, a type of banking business involving the
making of loans secured on particular assets - see the accounting
treatment,
- the incidental expenses incurred by a bank
in making such loans are revenue,
- Another way of putting much the same
point, but having more regard to the legal form of the
transactions, would be that,
- the incidental expenses of entering into a
lease need to be distinguished from the expenses of acquiring the
leased asset,
- the fact that such expenses would be
capital in the hands of the lessee where the lease is a means of
providing fixed assets of his business is irrelevant,
- finance leases, from the lessor's point of
view, are agreements which directly generates income (contrast the
lessee's position) - they are 'disposal' rather than 'profit-making
structure' agreements in the terminology used in such cases as
John Mills Production Ltd v Mathias (see pages
454/5 of 44 TC),
- the negotiation of such agreements is an
ordinary incident in the income generation process (in the same way
as a bank makes loans).
