Finance Leasing Manual - FLM11.57

Finance leased asset not depreciated

In some exceptional circumstances (for example in the water industry) regulatory requirements may prevent the rights in leased assets from being depreciated in the lessee's accounts drawn up under SSAP 21 although it is recognised that the assets do in fact lose value over time. In those circumstances - and in those circumstances only - you should accept that the allocation of the rentals to periods of account may be by reference to the depreciation which would reasonably have been charged in the absence of this requirement. You should not otherwise accept that tax relief is due where the trader is not prepared to recognise the depreciation in arriving at his commercial profit.