Corporation Tax Act 2010 section 377

Lessee under long funding finance lease: limit on deductions

Section 377 limits the amount that a company leasing plant or machinery under a long funding finance lease may deduct when calculating its taxable profits.

• Where a company is the lessee of plant or machinery under a long funding finance lease for all or part of an accounting period, special rules limit the tax deduction available.
• The amount deducted in respect of lease payments when calculating taxable profits must not exceed the finance charges — that is, the amounts shown in the company's accounts as finance charges or interest expenses in respect of the lease, determined in accordance with generally accepted accounting practice (GAAP).
• This means the company cannot deduct the full rental payments; instead, only the interest or financing element of the lease cost qualifies as a deduction, mirroring the accounting treatment.
• Where GAAP requires the lease to be treated as a loan rather than a finance lease, the same restriction still applies — the section operates as though the lease were accounted for as a finance lease.