Finance Leasing Manual - FLM31.26

First condition: finance lease wrongly treated as operating lease

The accounting treatment actually adopted in accounts said to be drawn up in conformity with UK standards is not decisive in establishing whether the lease is a finance lease (or loan). The test is what the treatment ought to be. This is because the provisions refer to how the leasing arrangements 'fall to be treated' in accordance with accounting practice as it applies to UK incorporated companies. (Paragraph 3(1)).

That said, the treatment of leasing arrangements in accounts drawn up under UK standards and attracting an unqualified auditors report is very strong evidence indeed of the correct treatment. Where exceptionally you consider that operating lease treatment in such accounts may be incorrect you should take early advice from the Revenue's accountants.