Corporation Tax Act 2010 section 366

Long funding operating lease: lessor's additional expenditure

Section 366 provides for an additional tax deduction available to a lessor under a long funding operating lease when the lessor incurs capital expenditure on the leased plant or machinery that was not reflected in its market value at the start of the lease.

• Where a lessor incurs capital expenditure on plant or machinery under a long funding operating lease that is not reflected in the asset's market value at the commencement of the lease, an additional deduction is available when calculating the company's taxable profits.
• The deduction applies for each period of account ending after the additional expenditure is incurred, provided the company remains the lessor under the lease.
• The deduction for each period is a time-apportioned share of the "expected reduction", which is the additional expenditure less the remaining residual value of the plant or machinery resulting from that expenditure.
• The time apportionment is based on the proportion of the total lease term that falls within the relevant period of account.