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HMRC internal manual

Business Leasing Manual

Sale of lessor companies and similar arrangements: business of leasing plant or machinery: meaning of ‘qualifying leased plant or machinery’ transactions before 23 March 2011.

FA06/Sch10/Para 6(5)

The concept of ‘qualifying leased plant or machinery’ is set out through a series of tests.

  • Has the company incurred expenditure on plant or machinery?
  • Has the company at any time been entitled to plant or machinery allowances in respect of the expenditure, whether claimed or not?
  • Has the plant or machinery been subject to a lease in the last 12 months?

‘Expenditure is incurred’ is extended to include expenditure that is ‘treated as incurred’ such as future payments under a hire purchase contract where the asset has been brought into use.

‘Plant or machinery’ has the same meaning as it does in Part 2 of CAA 2001 so that if the expenditure on the asset would qualify for plant or machinery allowances then it is plant or machinery.

‘Entitled to capital allowances’ is determined without taking into consideration the effect of sections 34A and 70A of CAA 2001 which transfer entitlement to capital allowances from the lessor to the lessee where the lease is a long funding lease (see BLM20000 onwards) and is independent of whether a claim to allowances has been made. Thus, all plant or machinery is taken into account for this test, whether the lessor is actually entitled to claim capital allowances or not.

‘Plant or machinery lease’ has the same meaning as in Chapter 6A of Part 2 of CAA 2001 (CAA01/S70K, see BLM20130) and excludes a lease that is a lease of background plant or machinery (CAA01/s70R, see BLM21300).Background plant or machinery is excluded from the calculation because that type of plant or machinery is integral to the functioning of a building as a usable space. Without the exclusion a commercial property lessor could fall within the scope of Schedule 10. For example, if a company only owns an office block that is leased out, then its plant or machinery would be leased. The exclusion for background plant or machinery ensures that this type of company does not fall within Schedule 10.