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HMRC internal manual

Business Leasing Manual

’Income-into-capital’ schemes and back loaded leases: Back loaded leases: accountancy rental earnings - when they accrue, a worked example

CTA10/S928 deems the accountancy rental earnings to accrue evenly over that part of the period of account in question during which the asset is leased. The purpose of this rule is twofold:

  • First, it deals with cases where the chargeable period (accounting period or year of assessment) is not the same as the period of account.
  • Secondly, it ensured a sensible result where an asset was leased part way through the (actual) period of account which straddled 26 November 1996.

Example: a company draws up accounts for the 18 months to 30 June 1999 (comprising for corporation tax a twelve month accounting period to 30 December 1998 and a six month accounting period to 30 June 1999) and begins to finance lease an asset on 1 October 1998. The accounts for the 18 month period drawn up under show gross earnings (if SSAP21) 0r ‘finance income’ (if FRS101, FRS102 or IFRS)(that is ‘accountancy rental earnings’) from the lease of £300,000. Section 928(3) provides that the £300,000 accrues evenly over the nine months to 30 June 1999. Thus £100,000 (3/9 x £300,000) is allocated to the accounting period ending 30 December 1998 and £200,000 (6/9 x £300,000) to the accounting period ending 30 June 1999.