Finance Leasing Manual - FLM11.55

Lessee's rentals: where SSAP21 not applied

You may see cases where the treatment in the commercial accounts of a finance lease entered into on or after 12 April 1991 is not in accordance with SSAP 21 (for example, in the case of an unincorporated business - see IM536e). See FLM11.18 for similar cases where the lease is entered into before 12 April 1991. In these cases the rentals may simply be charged against profits. That treatment may also be followed for tax purposes so long as it spreads rentals evenly (or on some other basis justified by the rate at which the value of the asset is used up), over the useful economic life of the asset (or the period of the lease, including secondary periods into which the lease is reasonably certain to be extended, if that is shorter).

Where rentals are charged against profits on some basis which seems inconsistent with the accruals concept, for example as the rentals fall due, you should negotiate appropriate adjustments to allocate the rentals to periods of account on an acceptable basis.