Finance Leasing Manual - FLM34.18

Bad debts: Schedule D Case I: reducing cumulative normal rental excess

The logic for making the restriction to cumulative accountancy rental excess (see FLM34.02) is that where rentals are effectively taken out of charge to tax by a bad debt deduction those rentals should not trigger a further subsequent deduction. This applies equally to cumulative normal rental excess. Paragraph 10 Schedule 12 FA 1997 therefore provides a set of rules to restrict that type of excess for bad debt deduction which are a mirror image of those in Paragraph 9.

In practice, however, it will only be necessary to consider those rules in the exceptional case where relief for cumulative normal rental excess is available, bad debts arise in respect of lease rentals and the situation is one of those described in FLM34.16 where a restriction has a practical effect.

If problems arise in applying the rules in Paragraph 10 to such a case advice should be sought from BTD4 Leasing.