Example
Most profits and losses under a finance lease pass through
gross earnings. However some may not.
In the example in
BLM40110 the lessee was due a net rental
refund of £19,000. However, if the plant or machinery had only
been worth £80,000 the lessee would have owed a net
termination rental of £20,000. If that termination rental had
not been paid the lessor would have suffered a commercial loss of
£20,000. That loss might be passed through the profit and loss
account, perhaps described as a bad debt.
In different circumstances, a lessor may seek an exceptional
payment in return for agreeing to terminate a lease. That payment
might give rise to an exceptional profit that may not be accounted
for as gross earnings.
Both cases would be covered by ICTA88/S502C: the loss would
be an allowable deduction and the exceptional receipt would be
taxable as income.
Note that such items may already be allowable or taxable on
general principles. Where this is the case, ICTA88/S502C will not
be in point because it only applies where a profit or loss would
not otherwise be brought into account in computing profits.
