76D. Computation of income and expenses from leases

(1) In this section and sections 299 and 403—

“finance lease” means a lease which, under generally accepted accounting practice, falls to be treated as a finance lease;

“lease” means a finance lease or an operating lease;

“leased asset” in relation to a lease, means an asset that is the subject of the lease;

“lease payments”, in relation to a lease, means amounts payable under the lease to the lessor in relation to the leased asset, and includes—

(a) any residual amount to be paid to the lessor at or after the end of the lease term and guaranteed by the lessee or by a person connected with the lessee or under the terms of any scheme or arrangement between the lessee and any other person, and

(b) any amount to be refunded by the lessor at or after the end of the lease term and guaranteed by the lessor or by a person connected with the lessor or under the terms of any scheme or arrangement between the lessor and any other person;

“lease term”, in respect of a company, has the meaning given to it by the generally accepted accounting practice in accordance with which that company prepares its accounts;

“lessee” and “lessor”, in relation to machinery or plant provided for leasing, mean respectively the person to whom the machinery or plant is or is to be leased and the person providing the machinery or plant for leasing, and ‘lessee’ and ‘lessor’ include respectively the successors in title of a lessee or a lessor;

“operating lease” means a lease which, under generally accepted accounting practice, does not fall to be treated as a finance lease.

(2) Subject to sections 80A and 299, Chapter 8 of Part 4, and subsection (4), for the purposes of computing income of a company from a trade of leasing, the income of a lessor from a finance lease—

(a) shall not be the amount of income from the lease computed in accordance with generally accepted accounting practice, and

(b) shall be computed, subject to the provisions of the Corporation Tax Acts other than section 76A, by treating—

(i) the total lease payments receivable in respect of the lease as trading receipts of the trade arising evenly over the lease term, and

(ii) as trading expenses of the trade any disbursements or expenses laid out or expended for the purposes of earning those lease payments.

(3) Subject to sections 80A and 299, Chapter 8 of Part 4, and subsection (4), for the purposes of computing the trading profits of a company which is the lessee in respect of a leased asset that is employed in that trade, the amount to be deducted in computing the profits or gains of a lessee—

(a) shall not be the lease related expenses or charges in respect of the lease computed in accordance with generally accepted accounting practice, and

(b) shall be computed, subject to the provisions of the Corporation Tax Acts other than section 76A, by treating the total lease payments payable in respect of the lease as an expense of the trade laid out or expended evenly over the lease term, and no amount shall be prevented from being deducted by virtue only of the fact that for accounting purposes it was taken into account in determining the value of an asset.

(4) (a) Subject to paragraph (b), where, during the lease term, there is a change to the lease term or the amount of the lease payments, then in the accounting period in which the change occurs—

(i) the amount of income under subsection (2), or

(ii) the amount to be deducted under subsection (3),

shall be recalculated.

(b) Where the amount of the lease payments is dependent upon any change in facts or matters arising, after the commencement of the lease, the recalculation referred to in paragraph (a) shall—

(i) where the change in facts or matters arising relates to the accounting period in which the change occurs, cause the lease payments in respect of that accounting period to be increased or decreased, as the case may be, and

(ii) where the change in facts or matters arising relates to more than one accounting period, cause the lease payments in respect of the accounting periods to which that fact or matter arising relates to be recalculated such that the increase or decrease, as the case may be, is spread evenly over those accounting periods.

(5) Notwithstanding subsections (2) and (3), where a rebate of lease payments, other than as referred to in paragraph (b) of the definition of ‘lease payments’, is payable or receivable on the termination of a lease, the amount of that rebate shall be—

(a) in respect of the lessor, deductible in the year in which it is paid or accrued, whichever is the later, and

(b) in respect of the lessee, taxable in the year in which it is received or accrued, whichever is the earlier.