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HMRC internal manual

Business Leasing Manual

Defining long funding leases: plant or machinery leased with other assets: outline (CAA01/S70L)

Plant or machinery may be leased with other assets. For example a production line may be leased with the buildings which house it. Or a car may be leased with a photocopier.

For the long funding lease rules to work as intended, and treat longer periods of financing of plant or machinery as just that, it is necessary to separate such leases into two or more leases and apply the long funding lease rules to each deemed lease. This is achieved by CAA01/S70L.

In broad terms, where plant or machinery is leased with other assets, the plant or machinery is treated as if it were the subject of a separate notional lease. Where different types of plant or machinery are leased under the same lease they too are treated as if they are subject to separate notional leases. The tests for a long funding lease, and the rules for taxing them, are then applied to each notional lease of plant or machinery.

See BLM21305 onwards regarding the treatment of certain plant or machinery, known as ‘background plant or machinery’ that is leased with land. Background plant or machinery is the sort of plant or machinery that might be found in many types of building and performs a ‘background’ function. It includes plant or machinery such as lifts and central heating.