Section 865 | Tax deduction not to exceed commercial rent

(1)The rules in subsection (3) apply to the calculation of the deduction by way of relevant corporation tax relief allowed in an accounting period—

(a)for the non-excluded element of the payment within section 864(2), or

(b)if there are two or more such payments, for the non-excluded elements of those payments.

(2)For the purposes of this section the non-excluded element of a payment is the element not excluded under section 866 (long funding finance leases).

(3)The rules are—

Rule 1 — meaning of amount E For any accounting period, amount E (which may be nil) is the expense or total expenses to be brought, in accordance with generally accepted accounting practice, into account in the period in respect of—

(a)the non-excluded element of the payment, or

(b)the non-excluded elements of the payments.

Rule 2 — calculation of amount E For every accounting period—

(a)calculate the total of amount E for the period and amount E for every preceding accounting period ending on or after the date of the creation of the lease mentioned in section 864(2)(a),

(b)calculate the total of the deductions by way of relevant corporation tax relief for every previous accounting period ending on or after that date, and

(c)subtract the total at (b) from the total at (a) to give the cumulative unrelieved expenses for the period.

Rule 3 — meaning of post-spread period An accounting period is a post-spread period if for that accounting period, and every later accounting period, there are no payments within section 864(2).

Rule 4 — the deduction allowed in an accounting period If an accounting period is not a post-spread period, the deduction allowed for the period is equal to the cumulative unrelieved expenses for the period, but is the commercial rent for the period if that is less (see section 867).

Rule 5 — accounting periods in which no deduction allowed If an accounting period is a post-spread period, no deduction is allowed for the period.