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HMRC internal manual

Business Leasing Manual

HM Revenue & Customs
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Defining long funding leases: the three tests: the lease payments test: CAA01/S70O

The lease payments test is one of the two main tests that may result in operating leases being classified as long funding leases. The other is the useful economic life test, BLM20255.

The lease payments test is met when the present value (BLM20235) of the minimum lease payments (BLM20230) is equal to or more than 80 per cent of the fair value of the asset (BLM20245).

The lease payments test means that a lease which does not meet the indicative 90% test in SSAP 21 (BLM11200) may be a long funding lease. There is no similar 90% test in IAS 17 (BLM11205).

This test applies whether the lease is accounted for as a finance lease, loan or operating lease.