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HMRC internal manual

Business Leasing Manual

’Income-into-capital’ schemes and back loaded leases: Bad debts: reducing cumulative accountancy rental excess - general practical effect

In practice, the extent to which it will be necessary to consider the bad debts provisions of CTA10/S911 is limited by the fact that, in many cases where the lessor cannot recover their investment in the lease (and their return on that investment), the lessor will be unable to make use of the cumulative accountancy rental excess in respect of the lease. This will be the case if:

  • no subsequent normal rent will arise against which to set the excess under CTA10/S908; and
  • the asset will be sold for less than cost and capital losses cannot normally arise on the disposal of an asset qualifying for capital allowances (TCGA92/S41) so that the quantum of TCGA92/S37A relief will be academic.