Finance Leasing Manual - FLM11.27

Lessee's rentals: use of SSAP21: adjustments in tax computations

Where SSAP 21 has been correctly applied in a finance lessee's accounts no adjustments will normally be necessary in the tax computation to give a Schedule D Case I deduction, in the appropriate periods and in accordance with the accruals concept, for total rentals payable net of rebates (but see the example on sale and lease-back at FLM13.14). That is, correctly prepared accounts normally give the right answer for tax purposes without further action in the tax computation.

The introduction of SP 3/91 means that the way in which assets are depreciated and the assumptions about asset life which are made may have an effect on the timing of the tax deduction for the rentals. This is covered further at FLM12.65 onwards. The compliance issue which arises for tax purposes is therefore whether, in an attempt to accelerate tax relief, the deductions for depreciation or interest have been uncommercially front-loaded.