Corporation Tax Act 2010 section 363

Lessor under long funding operating lease: periodic deduction

Section 363 provides a periodic tax deduction for lessors of plant or machinery under long funding operating leases, compensating them for the loss of capital allowances on the leased assets.

• A company leasing plant or machinery under a long funding operating lease is entitled to a deduction when calculating its taxable profits for each period of account.
• The deduction is based on the expected gross reduction in value of the asset over the lease term — calculated as the starting value minus the estimated residual value at the commencement of the lease.
• The portion of that total expected depreciation attributable to any given period of account is determined by apportioning it on a straight-line time basis according to how much of the lease term falls within that period.
• The definitions of "starting value" and "residual value" are set out in sections 364, 365 and 381(4) respectively.