Finance Leasing Manual - FLM34.24

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

The second stage (Paragraph 8(2) Schedule 12 FA 1997) is to ensure that no relief for a period of account under Section 41 ICTA 1988 can be given in the computation of the rents, net of expenses, taxable under Schedule A, if the measure of taxable rentals either for that period or for a previous period of the lease (starting with the period beginning on 26 November 1996) is the accountancy rental earnings. Instead an independent deduction, calculated as if the property were leased by way of trade, is given in the Schedule A computation.

This treatment applies even where the accountancy rental earnings do not exceed the normal rent so that it is the normal rent which is taxed by virtue of the ordinary Schedule A rules and not by virtue of Schedule 12, if for a previous period the accountancy rental earnings have been taxed. This is to ensure that there is no alternation between the two methods of giving bad debt relief with the resultant possibility of a double deduction or no deduction at all.

In considering whether there was a previous period in which the accountancy rental earnings formed the measure of taxable rental income, take into account not only periods in which the current lessor was the lessor but also those of an assignor who transferred the lease to the current lessor on no gain/no loss terms.