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HMRC internal manual

Corporate Intangibles Research and Development Manual

Finance leasing of intangible assets: lessors: general

FA02/SCH29/PARA104 and SI2002/1967

Why special rules are needed

Unlike the position of finance lessees of intangible assets (CIRD27030),Schedule 29 would not apply to a finance leased asset in the hands of a finance lessor without modification. In particular this is because such an asset is classified for accounting purposes as a ‘financial asset’ in the hands of the lessor and would therefore be excluded from Schedule 29 under the rule described in CIRD25050. That classification follows from the treatment of the finance lessor as a provider of finance rather than the provider of an asset.

The special rules

Paragraph 104 therefore sets out a regulation-making power to bring finance leasedassets within Schedule 29 in the hands of lessors and to make special provision for them. These regulations are in SI2002/1967 and are reproduced in CIRD27090.

The regulations:

  • take effect from 1 April 2002,
  • require an intangible asset to be brought within Schedule 29 in the hands of the finance lessor notwithstanding that it is regarded as a financial asset of the lessor under UK generally accepted accounting practice,
  • make a number of exclusions from this requirement (CIRD27060),
  • modify the computational rules for assets brought within Schedule 29 in this way (CIRD27070),
  • provide special rules for the case where a company starts to finance lease an intangible asset, having previously used it for other purposes (CIRD27080).

Definition of finance lease

A finance lease carries its meaning for accounting purposes (see CIRD27020) and includes hire purchase, conditional sale, or other arrangements which have a similar character to a finance lease (and so are accounted for in the same way).

This definition is set out in FA02/SCH29/PARA104 (4), to which the regulations refer.