Business Leasing Manual

BLM50005 - Right-of-use assets: introduction to taxation of right-of-use asset lessees

This part of the manual only deals with payments of rent (including rent rebates received on termination).바카라 사이트¯ It does not consider incidental costs concerned with leasing transactions (often capital 바카라 사이트“ see바카라 사이트¯BLM32040) or costs concerned with the modification of the leased asset.

IFRS 16 mandatorily replaced the accounting standard IAS 17 for accounting periods beginning on or after 1 January 2019.바카라 사이트¯ Entities had the option to adopt the standard early if they also adopted certain other new IFRS accounting standards.

The 2024 amendmentsÌý³Ù´ÇÌýFRS102Ìýmandatorily replace the previous FRS102 version for accounting periods beginning on or after 1 January 2026.Ìý Entities have the option to adopt the revised standard early.Ìý Section 20 is the specific section of the standard which relates ³Ù´ÇÌýleases.Ìý

The main change is that the distinction between on-balance sheet leases (finance leases) and off-balance sheet leases (operating leases) for lessees, is removed.바카라 사이트¯ Both new standards require a lessee to recognise all leases on its balance sheet, except certain exempted leases.Ìý

The lessee recognises the right-of-use asset and a lease liability on its balance sheet.바카라 사이트¯ Over the life of the lease the right-of-use asset is depreciated.바카라 사이트¯ Cash rentals are set against the lease liability and the interest charge.바카라 사이트¯ The cash rentals amount is usually equivalent to the sum ofÌýthe depreciationÌýandÌýthe interest chargeÌý(which is recognised on the reducing liability).바카라 사이트¯Ìý

On adoption of a new or revised accounting standard, accounting differences between operating lease and right-of-use lease accounting and transitional options could result in large debits being recognised in equity.바카라 사이트¯Ìý

Further background on accounting for right-of-use assets is given in바카라 사이트¯BLM17000 onwards.Ìý

Commercially nothing has changed for a lessee who has adopted the new standards.바카라 사이트¯ Although the accounting timing recognition of the rentals has changed, the actual cash rentals have not and neither have the commercial reasons for entering into leases.바카라 사이트¯ The same basic principles remain for the taxation of a lease held by a right-of-use lessee, such as most rentals being on revenue account despite the on-balance sheet accounting and the need to test whether the lease is a long funding lease.바카라 사이트¯Ìý

Legislation was introduced in Schedule 14 FA 2019 that aimed to ensure that the new or revised accounting standards did not change the tax treatment of lessees and requires the spreading of any amounts recognised on adoption of those standards.바카라 사이트¯ The spreading rules are explained in바카라 사이트¯BLM52000.