Finance Leasing Manual - FLM36.19

'New' lease first comes within Part I: no catching-up charge

No catching up charge is imposed when a 'new' lease first comes within Part I because the accountancy measure of rental income from the lease ('accountancy rental earnings') should not have systematically exceeded the taxable measure for previous periods (the 'normal rent').

• In the case of a lease which is initially a finance lease (or loan) Part II of the schedule will have applied to it and the excess of accountancy rental earnings over normal rents will have been recognised as income. Paragraph 14 Schedule 12 FA 1997 provides continuity of treatment of excesses in this situation (see FLM35.05).

• In the case of a 'new' lease which is an operating lease the general rules applicable to the head of charge at issue (usually Schedule D Case I but sometimes Schedule A) will ensure that a satisfactory measure of income is brought to account for tax.