Finance Leasing Manual - FLM27.02

Schedule 12 FA 1997: capital allowances overview

The new rules for recognising earnings for tax are the same for both Parts I and II of Schedule 12. A very important practical consideration once the transitional period is over is that the complex targeting rules for Part I are no longer relevant for the purposes of applying the new income recognition rules: if Part I's conditions are not met for some reason, Part II will always ensure that earnings cannot be less than the commercial measure.

Part I rules will nevertheless remain relevant for the purpose of catching and dealing with attempts to avoid capital allowances disposal adjustments. Schemes intended to turn income into capital are also countered by changes in the capital allowances rules. Allowances will not be due for assets let under new leases of this kind and allowances due under existing leases will be subject to normal disposal computations, even if an indirect disposal method is used. See FLM27.08.