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Chapter BLM51030

Document Cited in Related
Vincent
Published date10 April 2016
Record NumberBLM51030
CourtHM Revenue & Customs
IssuerHM Revenue & Customs

A long funding lease is

  • a plant and machinery lease (see BLM20120)

  • that is a funding lease (see BLM20205)

which is not

  • a short lease (see BLM20120)

  • an excluded lease of background plant or machinery for a building (see BLM20205)

  • excluded because it is a lease of plant with land and the plant has a low percentage value (see BLM21600)

A lessee who has adopted IFRS 16 will apply these rules in the same way as any other lessee. The only change is that a lessee who has adopted IFRS 16 cannot have a funding lease by virtue of the finance lease test. A lessee who has adopted IFRS 16 can only have a funding lease by meeting either the lease payments test or the useful economic life test.

Example 1

Train Operator Ltd has adopted IFRS 16 and enters into a lease for plant and machinery which meets all of the conditions to be a long funding lease bar a consideration of whether it is a funding lease. The lessee recognises a lease liability of £1,000,000 at inception. The fair value of the asset is £1,200,000. Although conceivably the lease liability may differ from the present value of the minimum lease payments it would be unusual for that to be the case and therefore it would be expected that the lease entered into by Train Operator Ltd would meet the lease payments test, that is, the present value of the minimum lease...

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