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HMRC internal manual

Business Leasing Manual

From
HM Revenue & Customs
Updated
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’Income-into-capital’ schemes and back loaded leases: Bad debts: where the normal rent is taxed - a worked example

Example

The two consequences described at BLM74025 can be illustrated by adapting slightly the figures in the example at BLM74010.

Year Accountancy rental earnings Normal rents Bad debt reduction
       
1 1000 Nil Nil
2 500 1000 2000

In this case:

  • none of the cumulative accountancy rental excess brought forward to year 2 (1000) can be set against the excess of normal rents over accountancy rental earnings for that year because there is no excess of normal rent over bad debt deduction (CTA10/S911(4)); and
  • the cumulative accountancy rental excess carried forward from year 2 (1000) is reduced by the excess of the bad debt deduction over the normal rent (also 1000) so that the cumulative accountancy rental excess is reduced to nil (CTA10/S911(5)).

CTA10/S912 goes on to provide that where a restriction under paragraph 9 is made and subsequently the bad debt deduction triggering the restriction is written back (and taxed), the cumulative accountancy rental excess brought forward to the period of the write back is increased by the amount of the write back.