Finance Leasing Manual - FLM36.17

Catching-up charge: 'existing' finance lease: terms of lease changed

The principal targets of the catching-up charge in Paragraph 13 Schedule 12 FA 1997 are 'existing' finance leases (which would come within Part II if they were 'new' leases) where the leasing arrangements are changed late in the term of the lease to enable the lessor to be partly paid out by a 'major lump sum' rather than by means of rentals. A major lump sum is a sum which is regarded for accountancy purposes as comprising not only the repayment of the lessor's investment but also 'interest' on it (see FLM31.38 onwards). If Part I was simply applied to 'accountancy rental earnings' accruing prior to the change in the arrangements which caused the lease to come within Part I, a substantial amount of rental income accruing prior to the change could be turned into capital.