Finance Leasing Manual - FLM31.69

Fourth condition: exception to CT Schedule A spreading rule

The exception to the general CT Schedule A spreading rule (see FLM31.68) is that a payment of rent is not spread if it falls due more than twelve months after the beginning of the rental period to which it relates and over which it would otherwise be spread. The point here is that the spreading mechanism applies purely for the purposes of making the comparison required by Paragraph 3(4) Schedule 12 FA 1997. If the lease does not come within Part I for the period of account the rents are taxed for that period on the entitlement basis. Furthermore, if the lease does come within Part I for the period of account the 'normal rent' for the purpose of the charging Section are also the rents taxable on the entitlement basis.

The purpose of the exception is therefore to forestall the writing of leases where rents are payable in arrears at intervals of more than twelve months. Otherwise such leases could be used to arrange for the tax measure of rents to lag well behind the accountancy measure without causing the condition in Paragraph 3(4) to be satisfied.