BLM20145 | Defining long funding leases: basic definition: transaction treated as lease under GAAP (CAA01/S70K (3) and (4))

This manual is being updated to reflect FRS 102 (2024 amendments). For guidance on the tax treatment of accounts prepared under IFRS 16 or the revised FRS 102, please refer to pages within the BLM50000 chapter.

The second of the definitions in CAA01/S70K applies to an agreement or arrangement where

• it is (or should be) treated as a lease in accordance with GAAP (CAA01/S70K(3)), and

• for the purpose of GAAP it is treated as conveying the right to use plant or machinery (CAA01/S70K (4)).

This definition encompasses transactions that are not leases, but which are accounted for as if they are leases.

Examples of arrangements that may fall within this definition are arrangements that are treated as leases under IFRIC 4 (for example outsourcing arrangements and take-or-pay and similar contracts). If you come across such arrangements, please discuss with an advisory accountant.

In addition, FRS 5 Reporting the Substance of Transactions, might require arrangements to be accounted for as a lease. Such arrangements would fall within the scope of scope of S70K (3) providing they met the conditions in S70K (4),