Beta This part of GOV.UK is being rebuilt – find out what this means

HMRC internal manual

Business Leasing Manual

From
HM Revenue & Customs
Updated
, see all updates

Sale of lessor companies and similar arrangements: business of leasing plant or machinery: condition A - business of leasing plant or machinery - example - transactions on or after 13 November 2008 but before 23 March 2011

This guidance covers transactions where the relevant day is on or after 13 November 2008 but before 23 March 2011. Where the relevant day is before 13 November 2008 see BLM80157 and where the relevant day is on or after 23 March 2011 see BLM80155 

Transport Ltd has the following assets on its balance sheet:

Fixed Assets £
   
Freehold property 1,000,000
Net investment in train leases 5,000,000
Office furniture 15,000
Computer equipment 100,000
Buses  
Lorries 1,000,000
400,000    
  Artworks 500,000
  Total 8,015,000

Calculate the accounting value of plant or machinery

The freehold property is used as office premises by the company. The value will need to be apportioned to determine what element is attributable to plant or machinery.

Trains are plant or machinery. The train leases are accounted for as finance leases and the value of the lease rather than the train itself is shown on the balance sheet. The net investment in the lease figure is included in the calculation of the net book value of plant or machinery. The total attributable to net investment in leases is £5,000,000.

The office furniture is plant or machinery and this value is included.

The computer equipment qualifies for plant or machinery allowances and this value is included.

The buses are plant or machinery, They are leased out on operating leases to unrelated parties.

The lorries are plant or machinery. They are leased in under a long funding finance lease from another group company and leased out under an operating lease to an unconnected party.

The artworks do not qualify for plant or machinery allowance (unless it is part of the business to provide ambience - here it is not). This value is not included.

In addition to the above items we learn that the company leases in cars from a group company under an operating lease that is a long funding operating lease, Cars are plant or machinery.

Adjustments to the balance sheet figures

The freehold property contains lifts and air conditioning systems; these items are plant or machinery. The value of this equipment is agreed to be £300,000.

The lorries are leased in under a long funding finance lease and the market value is therefore substituted for the accounting value. The market value is the market value of the plant or machinery unencumbered by the lease. In this case the market value of the lorries is 450,000.

The cars are leased in under a long funding operating lease and the market value is to be included. The market value of the cars is 80,000.

The relevant plant or machinery value, as adjusted is therefore £6,945,000  

Identifying the qualifying leased plant or machinery

You now need to determine how much of this plant or machinery is qualifying leased plant or machinery.

The fixtures in the building are not subject to a plant or machinery lease.

The trains are subject to a plant or machinery lease.

The office furniture is not subject to a plant or machinery lease.

The computer equipment includes a number of items which are subject to a plant or machinery lease. The value of the leased equipment is £60,000.

The buses are subject to a plant or machinery lease,

The trains are subject to a plant or machinery lease.

The cars are not subject to a plant or machinery lease - the relevant company is not a lessor.

Total value of leased out assets: £6,060,000

More than 50% of the assets are leased out and so the company is carrying on a business of leasing plant or machinery.