Finance Leasing Manual - FLM4.19

Lessor's 'interest': Schedule A 'entitlement' basis

It is worth remembering that the general tax rules for recognising the interest element don't necessarily follow the accountancy treatment explained at FLM4.10 onwards. For example, old Schedule A (which applies to companies until 1 April 1998) uses the 'entitlement' basis for real property rents - that is, rents are recognised when they were due to be paid. So it was possible to structure a lease so that rental payments were back-loaded (that is, due to be paid later rather than earlier) and so secure a timing advantage over the commercial accounts approach. FA97/SCH12 should have stopped the worst of such timing advantages abuse: see FLM26.01 onwards.