Revenue Tax Briefing

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Revenue Tax Briefing Issue 55, April 2004

Short term leases of Plant and Machinery

Section 35 provides an alternative taxing mechanism for lessors of short-life assets. Under existing rules, income of the lessor is calculated by treating gross lease payments as income and allowing capital allowances on the asset. Where the lease payments are received over, say, three years but capital allowances are given over eight years a timing mismatch occurs.

The section allows lessors of such assets to account for them for tax purposes in accordance with accounting rules. This will result in the “interest element” of lease payments being taxed but no capital allowances being available. It will not change the amount of tax paid but will involve a more even spread of the tax over the lease period.