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HMRC internal manual

Business Leasing Manual

‘Income-into-capital’ schemes and back loaded leases: Back loaded leases: taxing the 'accountancy rental earnings'

CTA10/S905 is the principal charging provision in Part 21 CTA 2010. It applies to leases within Chapter 2 and also, by virtue of CTA10/S929 (which for the purposes of Chapter 3 replaces references to CTA10/S905 with references to CTA10/S928), to leases within Chapter 3.

CTA10/S905 and CTA10/S926, as applicable for Chapter 2 and Chapter 3 as appropriate, apply for any ‘period of account’ in which the ‘accountancy rental earnings’ exceed the ‘normal rent’. In that case the measure of the taxable rental income from the lease is the accountancy rental earnings and not the normal rent. The accountancy rental earnings are therefore substituted for the normal rent for all tax purposes.

A ‘period of account’ for this purpose is defined as a period beginning on or after 26 November 1996 CTA10/S937. An actual period of account straddling or ending on that date is split into two notional periods of account for the purposes of the Schedule the first ending on 25 November 1996 and the second beginning on 26 November 1996 (CTA10/S932).