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HMRC internal manual

Business Leasing Manual

Defining long funding leases: exclusions from the definition of funding lease: example 2

Rosco Plc leased a locomotive and rolling stock to Broad Street Railways for 12 years ending on 30 April 2006. By 30 April 2006, the locomotives and rolling stock were in need of updating. Therefore Broad Street Railways approached Rosco Plc, asking it to make improvements by replacing the locomotive and introducing safety equipment. Rosco Plc agreed to fund the improvements. The locomotive was again leased to Broad Street Railways under a lease from 1 May 2006. The improvements were paid for by Rosco Plc and reflected in the rentals.

For the purpose of CAA01/S70J (6) the plant or machinery is the locomotive and rolling stock, and the lease that commenced on 1 May 2006 is not a funding lease.