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HMRC internal manual

Business Leasing Manual

Defining long funding leases: basic definition: lease accounted for as lease under GAAP (CAA01/S70K (2))

The first of the definitions in CAA01/S70K is that a plant or machinery lease is an agreement or arrangement

  • under which a person grants to another person the right to use plant or machinery for a period, and
  • which, in accordance with GAAP, falls (or would fall) to be treated as a lease.

The first leg of this definition refers to the legal concept of a ‘lease’ and the second leg refers to being accounted for as a lease under SSAP 21 or IAS 17 (BLM00025). Note that not all leases are accounted for as leases, and that the second leg of this definition does not automatically follow from the fact the transaction is a lease.

A lease is treated under GAAP as a lease if it is accounted for as a lease following the principles in SSAP 21 or IAS 17. Both SSAP 21 and IAS 17 may apply to transactions that are treated as if they were leases (BLM20145).

A lease is not treated as a lease if, for example

  • it is accounted for as a service concession (for UK GAAP, FRS 5, Application Note F; for IFRS, IFRIC 12 (BLM20150)
  • the transactions do not convey the right to use an asset for an agreed period of time, that is the arrangement does not have the substance of a lease (for UK GAAP, FRS 5; for IFRS, SIC 27)
  • the transaction is accounted for under IAS 39 as a financial asset or liability, or under another relevant standard, for example IAS 18, by virtue of it not being treated as a lease under SIC 27.