Finance Leasing Manual - FLM43.01

Finance lessors: bad debts

The amount of any bad debts relief for tax purposes is unlikely to follow the amount shown in the accounts. The accounts treat a finance lease as a loan. The only income recognised for accounting purposes is the interest / finance charge element of the rentals. But for tax purposes:

• the lessor's initial outlay is capital expenditure on the purchase of the asset to be leased, not as a loan to the lessee;

• the lessor's outlay normally qualifies for capital allowances;

• the full amount of the rentals is a taxable revenue receipt.

Any amounts written off as bad debts in the lessor's accounts and claimed to be deductible for tax purposes should be analysed to see what they consist of.