Finance Leasing Manual - FLM31.31

First condition: deemed different treatment in group consolidated accounts

In some circumstances Paragraph 28 Schedule 12 FA 1997 deems into existence consolidated group accounts drawn up in accordance with UK standards to determine whether leasing arrangements count as a finance lease. For example where the lease is correctly regarded as an operating lease in lessor company's accounts (or would have been if drawn up under UK standards) but would have been treated as a finance lease in group consolidated accounts if they had been prepared under UK standards. This rule is analogous to the provision deeming lessors to have drawn up their own accounts in accordance with UK accounting standards but its scope is more limited.

The background here is that under UK company law (which applies to all companies incorporated in the UK) a company is required to draw up consolidated accounts if it is a 'parent undertaking' (broadly a company which controls other companies, 'subsidiary undertakings'). This is subject to an exemption if the company itself is a subsidiary undertaking of another 'parent' company which is obliged to draw up consolidated group accounts.