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HMRC internal manual

Capital Allowances Manual

Overseas leasing: Protected leasing, short-term leasing

CAA01/S105 (5), S118 & S121

Protected leasing

Protected leasing is important because a lease to a person resident abroad escapes the overseas leasing legislation if the leasing is protected leasing.

Protected leasing is:

  • short-term leasing of the plant or machinery, or
  • if the plant or machinery is a ship, aircraft or transport container, its use for a qualifying purpose under CAA01/S123 CA24120 or CAA01/S124 CA24130.


It is the lease to the overseas lessee that must be protected leasing to stop the overseas leasing legislation applying.

If there is a chain of leases the overseas leasing legislation applies if any lessee in the chain is an overseas lessee and the leasing to that lessee is not protected leasing.

Example David is resident in the UK. He buys a ship that he leases to Stephen who is resident overseas and does not use the ship for earning profits chargeable to tax. Stephen leases the ship to Graham whose trade includes operating ships and Graham lets it to Neil on voyage charter. Neil is resident overseas. Graham’s letting to Neil is protected leasing. The overseas leasing legislation applies and allowances are restricted even though the lease to Neil is protected leasing because Stephen is an overseas lessee. If Stephen has been resident in the UK the overseas leasing legislation would not have applied even though Neil is resident overseas because the leasing to Neil is protected leasing.

If plant or machinery is used for overseas leasing which is protected leasing; a claim for a FYA or a WDA at the main rate* must be accompanied by a certificate CA24500. The certificate should specify the protected leasing and the person to whom the plant or machinery is leased. If there is more than one such item of plant or machinery leased in a chargeable period the certificate should specify all the items of plant or machinery.

Short-term leasing

These are the two ways in which leasing is short-term leasing.

  1. Leasing plant or machinery is if the plant or machinery will normally be leased:
* to the same person for less than 30 days at a time, and
* to the same person for less than 90 days in any 12 month period.

For example, the hiring of plant or machinery to a person for 10 days three times in a year is short-term leasing because the plant or machinery is hired to that person for less than 30 days at a time and for less than 90 days in the year.

Plant or machinery that is hired out by traders:

  * whose hiring contracts normally run for less than 30 days, and
  * who hire out equipment at random to a wide range of customers,


is used for short-term leasing because the leasing satisfies the above definition.

  1. Leasing plant or machinery is also short-term leasing if:

    * the plant or machinery will not normally be leased to the same person for more than 365 days at a time, and
    * the periods in any four year period within the designated period [CA24050]( when it is leased to a non-qualifying lessee will not add up to more than two years in total.
    The leasing of contractors' plant and other specialist items is usually in this category.
    The fact that plant or machinery is occasionally hired for a period of more than 365 days does not prevent the leasing of the plant or machinery being short-term leasing. It will be short-term leasing provided that most hirings of that plant or machinery are for less than 365 days.
    A non-qualifying lessee is a person other than a person who:
      * uses the plant or machinery for the purposes of a qualifying activity other than leasing and for no other purposes, and
      * would have been able to treat the expenditure on the plant or machinery as qualifying expenditure if they had incurred it.
    So a person who is exempt from tax is a non-qualifying lessee because that person could not have treated the expenditure on the plant or machinery as qualifying expenditure.
    Treat connected persons as the same person when you apply the above tests.
    Treat all the plant or machinery in a pool of leased plant or machinery, which are of the same or a similar description and are not separately identifiable, as used for short-term leasing if substantially the whole of the items in the pool are used for that purpose.
    For example, if a firm hires out scaffolding to a large number of customers for periods that are normally less than 30 days, then the hiring out of the scaffolding is short-term leasing.
    FA2011 reduced the main rate WDAs from 20% to 18% from 1 April 2012 (CT) and 6 April 2012 (IT).