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HMRC internal manual

Business Leasing Manual

From
HM Revenue & Customs
Updated
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Defining long funding leases: plant or machinery leased with other assets: mixed and derived leases (CAA01/S70L)

A ‘mixed lease’ is an arrangement involve the leasing of

  • plant or machinery of any particular description, and
  • any other assets.

The ‘other assets’ may be assets such as land or plant or machinery of a different description. Therefore a mixed lease might be a lease of equipment with the factory in which it is housed or a lease of two types of industrial equipment.

The plant or machinery in the mixed lease is referred to as the ‘relevant plant or machinery’.

This legislation only applies to what are referred to as ‘eligible mixed leases’, that is arrangements that

  • would be treated as a lease under GAAP (BLM20130), or
  • involve the relevant plant or machinery as the subject of a sale and finance leaseback and the mixed lease is, or includes, the finance lease in the sale and finance leaseback (CAA01/S70L (2)).

An agreement or arrangement that would be treated as a lease under GAAP immediately after the commencement of the term of the lease is treated as a lease during the pre-commencement period. The pre-commencement period is the period from the inception of the lease to the commencement of the term of the lease (CAA01/S70L (3) and (4)). This is similar to the approach taken in CAA01/S70K, the definition of a plant or machinery lease.

Where a lease is an eligible mixed lease, it is treated as two or more separate leases of the relevant plant or machinery and of the other assets. These notional separate leases are called ‘derived leases’.

You should interpret ‘plant or machinery of any particular description’ narrowly. That is to say, any asset that can be described and identified as distinct from any other asset would be plant or machinery of a particular description. So, for example, two cars of the same make and model could be plant or machinery of two descriptions as long as each could be identified. In practice, however, where a number of similar items are leased such as cars or photocopiers there may be no practical need to identify each derived lease as each would be identical and nothing would be gained by splitting them up into separate derived leases.