SolvedBLM70030 | ‘Income-into-capital’ schemes and back loaded leases: Introduction to back-loaded leases: comparison of tax and commercial profit
From HM Revenue & Customs · Business Leasing Manual
The table below summarises the net profit from a finance lease for tax and accountancy purposes. The table shows receipts at the top, then deductions and finally the profit.
| GAAP | Tax |
|---|---|
| Interest receivable | Interest element of rents plus capital element of rents |
| (less interest payable) | (less interest payable) |
| (less other expenses) | (less other expenses) |
| (less capital allowances) | |
| Commercial profit | Taxable profit |
The key difference is that the capital repayment element is not part of the commercial earnings. But unless the lease is a long funding lease (in which case Part 21 CTA of 2010, does not apply) it is part of the tax earnings, although there may be a compensating deduction for capital allowances depending on the nature of the asset.