The following amounts are brought into account when determining the profits of a person carrying on a trade in any period (either in whole or in part) in which he is the lessor of any plant or machinery under a long funding lease which is a long funding operating lease (see B5.405).
Periodic deduction
Because lessors are not entitled to capital allowances in respect of the leased plant, the lessor under a long funding operating lease is entitled to a deduction for the amount by which the plant is expected to fall in value over the term of the lease, apportioned on a time basis to each period of account over the term of the lease. These are called 'periodic deductions'1.
The deductions are computed as follows2:
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(1)ÌýÌýÌýÌý Find the starting value (see below)
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(2)ÌýÌýÌýÌý From the starting value deduct the 'residual value'3, ie the amount which (at the commencement of the lease) is the estimated market value on disposal at the end of the lease
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