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lease accounting

HMRC consults on lease accounting changes

19th Aug 2016
Freelance journalist
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HMRC has asked for views on changes tax rules for the leasing, focusing only on plant and machinery in response a new international accounting rule for leases. 

IFRS 16, which is due to start in 2019, is considered one of the most important of planned global accounting rules. The rule is expected to put billions of pounds of leased assets on company balance sheets, especially for companies with a lot of property such as retailers. But critics say it’s too complicated.

HMRC outlines in the consultation document that the new changes could “simply preserve the effects of the current regime or could introduce a new regime for the tax treatment of leases of plant and machinery”.

The IASB enacted these changes to improve reporting in the financial statements of lessees, so the new standard will not affect lessors outside of the disclosure of accounts.  

However, the changes will be bigger for lessees, who will only be able to use one form of accounting, and so will no longer be able to classify their leases as being ‘finance’ or ‘operating’ leases.

HMRC anticipates the impact of IFRS 16 will bring about changes to the existing tax legislation. However, the Revenue believes the majority of businesses in the UK will continue to use the unchanged UK GAAP. To prepare for this, HMRC has drawn four possible approaches to tax changes to cater to the new IASB accounting by lessees. These scenarios are:

  • Retain the status quo: which would see minimal change to statutory provisions
  • Accounts based regime
  • Accounts based with leasing allowance
  • Accounts based with capital allowances.  

HMRC is particularly keen to hear views from lessees, lessors, professional agents and representative bodies. After considering responses to its first consultation the government will consult on their preferred option, HMRC said.

The consultation ends on 30 October.

Progress on the new accounting rule has been slow, even by the glacial standards of international accounting standard setters. A draft for lease accounting was first published in 2010.

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