Lessors of plant or machinery under long funding finance
leases are taxed on the rental earnings that are shown in the
accounts, or which would be shown if accounts were prepared in
accordance with GAAP (ICTA88/S502B (3)). These rental earnings may
be described as finance income or finance lease receivables.
The rental earnings of ICTA88/502B includes the gross
earnings (‘finance charges’) referred to at
BLM14000 onwards but may include other
items such as the small profit retained on selling the asset when a
lease comes to an end. See
BLM40110 for an example.
Where, exceptionally, a lease is accounted for as a loan the
lessor is taxed on the amount that is, or should be, shown as
interest in accounts prepared under GAAP (ICTA88/S502B (4)). Note
that although the income is accounted for as interest it does not
arise from a loan relationship and so the loan relationships
legislation does not apply.
This guidance refers only to ICTA/88, but essentially the
same principles apply to the equivalent sections in ITTOIA/05. The
equivalent sections are
