Chapter CA23830

Published date16 April 2016
Record NumberCA23830
CourtHM Revenue & Customs
IssuerHM Revenue & Customs
CAA01/S70G - 70K, 70N -70P

These are definitions you use for the long funding lease legislation.

Plant or machinery lease

A plant or machinery lease is:

  • an agreement or arrangement:

    • under which a lessor grants another person the right to use the plant and machinery for a period of time; and
    • which is treated under generally accepted accounting practice as a lease;

      • an agreement or arrangement which is treated under generally accepted accounting practice as a lease and conveys or would convey the right to use an asset which is plant or machinery;
      • the finance lease element of a sale and finance leaseback.

    If a lease would satisfy the conditions for being a plant or machinery lease immediately after the commencement of its term treat it as a plant or machinery lease from its inception.

    Short lease

    A short lease is

    • a lease whose term is not more than 5 years, or
    • a lease whose term is between 5 and 7 years, provided that:

      • the lease would be treated as a finance lease under generally accepted accounting practice;
      • the residual value of the asset implied in the lease is not more than five per cent of the fair value of the asset at commencement; and
      • the rentals due in any year do not vary by more than ten per cent from the rentals due in any other year (other than as a result of changes in interest rates).

      When you are trying to decide if the rentals vary ignore:

      • variations due to changes in the base rate for interest,
      • rentals payable before the commencement of the term of the lease, and
      • rentals payable at commencement to the extent that they are more than the next rental payment.

      The requirement that a lease whose term is 5 to 7 years would be treated as a finance lease means that an operating lease whose term is 5 years or more cannot be a short lease.

      Funding lease

      A funding lease is a plant or machinery lease that satisfies at least one of these conditions at its inception.

      • It is accounted for as a finance lease in the accounts of a person; where the person is a lessor the condition is that is accounted for as a finance lease in the accounts of anyone connected with the lessor. If accounts are not prepared in accordance with international accounting standards or UK generally accepted accounting practice check whether the lease would be accounted for as a finance lease under international accounting standards.
      • The net present value of the minimum lease payments is more than 80% of the fair value of the...

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