Finance Leasing Manual - FLM34.15

Bad debts: reducing cumulative accountancy rental excess: general practical effect

In practice, the extent to which it will be necessary to consider the bad debts provisions of Paragraph 9 Schedule 12 FA 1997 is limited by the fact that, in many cases where the lessor cannot recover his investment in the lease (and his return on that investment), the lessor will be unable to make use of the cumulative accountancy rental excess in respect of the lease. This will be the case if:

• no subsequent normal rent will arise against which to set the excess under Paragraph 6; and

• the asset will be sold for less than cost and capital losses cannot normally arise on the disposal of an asset qualifying for capital allowances (Section 41 TCGA 1992) so that the quantum of Paragraph 12 relief will be academic.