Finance Leasing Manual - FLM42.03

Reinvestment income: interest earned on cash balances

Typically, competitive pressures will compel the lessor to take interest earned from the investment of these surplus cash balances into account in setting lease rentals. In those circumstances paragraph 97 of the guidance note to SSAP 21 permits those sums to be taken into account in calculating the lessor's constant rate of return on the balances outstanding under the lease as they are an integral part of the operations of what is in essence a financial concern.

You should resist any contention that for Schedule D Case I purposes the accounting treatment of the interest is over-ridden by a tax principle. The general background on the timing of trading receipts is described in IM 356. For guidance on whether such interest is chargeable under Schedule D Case I see FLM42.05 (for periods ending after 31 March 1996) and FLM42.06 (for other periods).