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HMRC internal manual

Business Leasing Manual

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HM Revenue & Customs
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Taxation of long funding leases: Lessees: Capital expenditure

If the lease is a long funding operating lease the lessee’s capital expenditure is given by CAA01/S70B as the market value of the asset at the later of

  • the commencement of the term of lease, and
  • the date on which the asset is first brought into use by the lessee for the purposes of the qualifying activity.

The market value is arrived at ignoring the lease (CAA01/S70YI).

If the lease is a long funding finance lease the basic rule is that the lessee’s capital expenditure is the present value of the minimum lease payments at the appropriate date (CAA01/S70C). The appropriate date is the later of:

  • the commencement of the term of the lease, and
  • the date on which the lessee first brings the asset into use for the purposes of the qualifying activity.

The present value of the minimum lease payments at the appropriate date is calculated on the assumption that accounts were prepared in accordance with GAAP (as defined in CTA10/S1127, ITA07/S997). The present value of the minimum lease payments at the appropriate date is the amount that would fall to be treated as the present value of the minimum lease payments in the lessee’s accounts at the appropriate date.

If a long funding lease is accounted for as a loan the lessee’s capital expenditure is calculated in a similar way.

Further guidance on the capital allowances aspects of long funding leases is at CA23800 onwards.