Finance Leasing Manual - FLM41.06

Grossing-up: indications of permanent tax benefits

Where the accounting treatment for a lease suggests that it gives rise to a permanent tax benefit (see FLM41.02) you should consider whether that benefit is one that Parliament clearly intended (like the exemption of regional development grants) or whether it represents the exploitation of a loophole in the tax system (such as the leasing arrangements turning income into capital at which Schedule 12 FA 1997 is aimed). In the latter case, you should report the facts to BTD4 Leasing.

Indications that a lease gives rise to a permanent tax benefit may be found in the following situations:

• where 'grossing up' has taken place, the amount of the grossing adjustments should normally be disclosed as a note to the accounts (see paragraph 41 of SSAP 21 before it was amended when grossing was outlawed);

• where figures in respect of a lease are shown on a net basis and give rise to a permanent tax benefit, the tax charge reflected in the accounts in respect of a lease may well be replaced by a tax credit;

• in the accounts for the first period in which UITF 16 is applied (at the latest for accounting periods ending on or after 22 June 1997), the previous year comparatives may be restated to put them on a net basis too. (Accumulated profits brought forward will not be affected as the after tax position is the same whichever method is used.)