Finance Leasing Manual - FLM25.16

Bad and doubtful debts: tax treatment

For tax purposes there is usually no problem with proper provisions for bad and doubtful debts. However, the commercial accounts provision may be for the whole debt and not just earnings recognised but not received. It is only the provision against earnings which is deductible for tax.

There may be a risk that lessors will be over-prudent just for tax purposes. However, for the big players doing the big deals, the discipline of the market should be an adequate safeguard - at least at the group consolidated accounts level. Any case where there is a material difference between the group accounts and the individual company accounts merits detailed examination to establish the auditors' justification for the different treatment. A novel feature of Schedule 12 FA 1997 is that it specifically looks at the group level.