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HMRC internal manual

Business Leasing Manual

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HM Revenue & Customs
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Defining long funding leases: election: eligible leases: election under CAA01/S227 (SI2007/304 regulation 3 condition E(c))

Condition E is met if the plant or machinery is the subject of a valid election under CAA01/S227 before the electing lessor makes a return for the period in which the lease term commences. This allows certain leases of used plant or machinery to meet condition E.

When businesses need new equipment they will often make the purchase using short-term finance and arrange longer-term finance at a later date. This finance may be provided under arrangements where a lessor buys the asset and leases it back to the lessee under a finance lease. These arrangements may be

  • the result of a business approaching the lessor for the first time once it has bought the plant or machinery, or
  • similar to a revolving credit arrangement under which the lessor has agreed to provide finance to the lessee in advance of the lessee acquiring the plant or machinery.

In each case, the plant or machinery is not new when first leased.

The anti-avoidance legislation in Chapter 17 of Part 2 CAA would normally apply in these circumstances, but if the sale and leaseback occurs not more than 4 months after the plant or machinery has first been used it may be possible to make an election under CAA01/S227. Further guidance on section 227 is given at CA28650.

Where such an election is made the original owner cannot claim capital allowances and condition E is met.