Finance Leasing Manual - FLM2.29

Operating leasing: tax treatment

The tax treatment of operating leases normally follows the accountancy treatment. However, please let Business Tax Division (Leasing) know if you detect a significant trend towards operating leasing after finding out the basis on which income and deductions are recognised. There may be a further move towards using operating leases as a result of legislation in 1997 to counter a number of finance leasing schemes (see FLM6.50 onwards). For example, at the margins, there may be little difference between an 89% operating lease and a 91% finance lease; but the basis on which receipts and deductions are recognised for accountancy purposes could be very different.