Finance Leasing Manual - FLM36.28

Catching-up charge: Schedule A lessors: periods of account before 1 April 1998

The calculation of the cumulative accountancy rental excess, and thus the catching up charge, when the lease first comes within Part I will have been by reference to the rents before any reduction under Section 41 ICTA 1988 (by virtue of Paragraph 8(1) Schedule 12 FA 1997 - FLM34.23). Nor will that excess have been capable of reduction by bad debt relief given as a separate deduction, as it is under Schedule D Case I rules, by virtue of Paragraph 9. (Paragraph 8(2)-(7) which provide for Case I relief to be given in place of Section 41 relief, only applies in computing a charge under Paragraph 5, not a charge under Paragraph 13.)

In computing the cumulative accountancy rental excess, and thus the catching up charge, any Section 41 ICTA 1988 relief actually given is treated as a Case I deduction for the deemed period of account in which the charge is crystallised.

The effect of giving a deemed Case I deduction in this way is to reduce the cumulative accountancy rental excess, and thus the catching up charge by the bad debt deduction. This is because there will be no accountancy rental earnings nor normal rents attributable to the deemed period of account in which the charge arises (because of its brevity). Paragraph 9(2) and (4) of Schedule 12 will then apply to allow the whole of the deemed bad debt deduction to be set off against the cumulative accountancy rental excess for the period.