Finance Leasing Manual - FLM41.01

Finance lessors: grossing up for notional corporation tax

Finance lessors regularly benefit from timing advantages in connection with the payment and repayment of corporation tax. Typically, the recognition of profit on a lease for tax purposes lags behind recognition in the accounts. Capital allowances may also give rise to tax losses in the early periods of a lease even though the accounts consistently show a profit. These tax effects are factored into the process of fixing rentals and allocating the interest element of rentals (termed 'gross earnings' in SSAP 21) to accounting periods.