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HMRC internal manual

Business Leasing Manual

’Income-into-capital’ schemes and back loaded leases: Bad debts: trading income - example

The point at BLM74005 can best be illustrated by an example. Assume the following position for the first two accounting periods relating to a continuing finance lease to which Part 21 of CTA 2010 applies.

Year Accountancy rental earnings Normal rents Bad debt reduction
1 1000 Nil Nil
2 1000 1000 2000

In the absence of provisions in Part 21 restricting the cumulative accountancy rental excess, the excess available to carry forward at the end of year 2 would be 1000 even though, net of bad debt relief, no rents have been taxed.