An entity can prepare accounts in the UK either under UK GAAP or International Financial Reporting Standards (IFRS) and for tax purposes both standards from part of what is referred to as generally accepted accounting practice (GAAP — which is distinct from UK GAAP).
If an entity prepares UK GAAP accounts under FRS 102, then its leases (operating leases, finance leases and hire purchase contracts) will be in accordance with GAAP if it accounts for them in accordance with FRS 102 s 20.
For accounting periods beginning before 1 January 2015, UK GAAP required an entity to deal with its leases under Statement of Standard Accounting Practice (SSAP) 21 (Accounting for leases and hire purchase contracts), as supplemented by UITF 28 (Operating Lease Incentives), FRS 5 (Reporting the substance of transactions) and the Finance and Leasing Association Statement of Recommended Practice (FLA SORP).
For periods of account commencing on or after 1 January 2019, if an entity prepares accounts under IFRS or FRS 101 then leases will be dealt with in accordance with IFRS 16, although early adoption was allowed. Where a lessee applies IFRS 16 in their financial statements, there is no distinction between a finance lease and an operating lease, a lessee recognises all leases on their balance sheet as right-of-use assets and corresponding lease liabilities (apart from some exempted leases which are short or of low value). In order to maintain the tax treatment of finance leases and operating leases if IFRS 16