Finance Leasing Manual - FLM32.01

Schedule 12 FA 1997: taxing the 'accountancy rental earnings'

Paragraph 5 is the principal charging provision in Schedule 12 FA 1997. It applies to leases within Part I and also, by virtue of Paragraph 17, to leases within Part II.

Paragraph 5 applies for any 'period of account' in which the 'accountancy rental earnings' exceed the 'normal rent'. In that case the measure of the taxable rental income from the lease is the accountancy rental earnings and not the normal rent. The accountancy rental earnings are therefore substituted for the normal rent for all tax purposes.

A 'period of account' for this purpose is defined as a period beginning on or after 26 November 1996 (Paragraph 30(1)). An actual period of account straddling or ending on that date is split into two notional periods of account for the purposes of the Schedule the first ending on 25 November 1996 and the second beginning on 26 November 1996 (Paragraph 23).

The excess of accountancy rental earnings over normal rent is what in accountancy jargon is known as 'negative depreciation', that is the difference between what is in substance, and under SSAP 21, interest accruing on a loan and the rental income referable to the rental periods falling in the period of account.