OT22020 - Interest and Financing

Section 494 Sale and Leaseback

If a company sells an asset on or after 9 March 1999 and leases it back under a finance lease, ICTA88/s494AA (introduced by FA99/s[100]) applies. This allows a ring fence deduction for the amount of the lease rental payments that would, under UK accounting principles, be treated as a finance charge only if the sale proceeds are used to meet qualifying North Sea expenditure (i.e. expenditure of the same sort as would qualify under s494). Thus the "interest" element of a finance lease is subject to similar restrictions to those that apply to loan interest. Any amounts that would be deductible apart from s494AA are treated as if they were non-trade debits, and can be allowed against non-RF profits accordingly.