BLM11220 - Lease accounting: lease classification: independent approach
This manual is being updated to reflect FRS 102 (2024 amendments). For guidance on the tax treatment of accounts prepared under IFRS 16 or the revised FRS 102, please refer to pages within the BLM50000 chapter.
Each party to a lease must make its own assessment as to whether it has a finance lease or an operating lease. Therefore a lease may not be classified in the same way by both parties to the lease contract
This difference may arise because the ‘minimum payments’ and balance of risks and rewards can be different for the lessee and lessor in an arrangement, particularly a complex one, see BLM11230.
In particular, the minimum payments may differ because a lessor may obtain a residual value guarantee from a person unconnected with the lessee (BLM11025). Taking account of the guarantee may make the lease a finance lease from the lessor’s perspective, but not from the lessee’s perspective.
In addition, the possibility that lessor and lessee take different views on lease classification may become very slightly magnified when one of the parties prepares accounts in accordance with IFRS or FRS101 and the other does not.