Finance Leasing Manual - FLM34.23

Bad debts: Schedule A: periods before 1 April 1998: computing accountancy rental earnings and normal rent

The first stage in this process is to ensure that bad debts in respect of lease rentals within Schedule A are not deducted from the rentals in computing either 'accountancy rental earnings' or 'normal rent'. For all purposes the figures before any deduction for bad debts must be used (Paragraph 8(1) Schedule 12 FA 1997).

In testing whether a lease satisfies the fourth of the conditions in the definition of a lease within Part I Schedule 12 (see FLM31.57), the comparison to be made is between accountancy rental earnings prior to any bad debt deduction and normal rents prior to such a deduction. But if it turns out that a lease is not within Schedule 12 (whether by virtue of Part I or Part II) relief under Section 41 ICTA 1988 may be given in the ordinary way.