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HMRC internal manual

Business Leasing Manual

Defining long funding leases: basic definition: Meaning of plant and machinery

The term ‘plant or machinery’ has the same meaning as it has elsewhere in CAA. It is not statutorily defined but it is limited by the general prohibitions at sections 21, 22 (subject to section 23) and 24 and various specific provisions within Part 2 of CAA.

You should follow the guidance at CA21010 onwards to determine whether a particular asset is plant or machinery. No particular difficulties are likely to arise in connection with machinery but it may be necessary to consider whether an asset is plant because it passes the ‘business use test’, see CA21140.

It is important to note that plant may not qualify for capital allowances in the hands of a lessor for a number of reasons, including specific prohibitions and failing to meet the ownership requirements of CAA01/S11. Notwithstanding the fact that capital allowances may not be available, leases of such assets are still leases of plant or machinery if they pass the business use test.

For example, a lessor might lease central heating systems or micro-generation systems for use in private houses. Such assets would not qualify for capital allowances, but if the lease is a long funding lease that does not matter as the lessor will only be taxed on its commercial profit. This is so, whether the lease a long funding lease following an election (BLM24000 onwards) or otherwise.

Naturally, this does not automatically give the lessee a right to capital allowances as the usual tests still need to be satisfied from the perspective of the lessee. Note, however, that CAA01/S70A deems the lessee to be the owner of the leased asset.