Have Tax Questions? Ask a Tax Expert for Answers ASAP
Yes, the company has paid the lease premium at the start of the lease (£48k). The lease has 9.5 years left to run. The monthly rental on the lease is £2917.
The landlord took a 3 month depposit at the start of the lease.
I have spoken to an ICAEW specialist technical accountant who has told me the lease premium should been recognised as a prepayment on the balance sheet. I have spoken to other accountants who have told me I can capitalise the premium.
I am not sure who is correct.
I am also unclear whether, if I were to capitalise the lease premium, capital allowances could be claimed on the lease premium? And would the associated legal and architects fees also be capitalisable?
Ok, just to clarify a couple of things:
The lease premium of £48k gets capitalised in the balance sheet. Are you saying that the associated costs such as architects and legal fees also get capitalised?
Are there any capital allowances available on the lease premium? Sounds like you are saying no, but there instead is a tax relief of apx. £4193 pa.
Are capital allowances available on the fixtures and fittings that I have installed in the restaurant since taking over the lease? Or are capital allowances only available on plant and machinery?
How would I clasify the tax relief "expense" of £5052-859 = £4193 in profit and loss acount?
As far as the fees are concerned, that's the way I've seen them accounted for. Take a look here for the HMRC notes on lease expenses. However, I have on occasion seen them added to the lease premium and tax relief claimed over the term of the lease. More landlords are doing that these days with mortgage arrangement fees, ie over the term of the mortgage or in some cases over the term of a fixed rate arrangment. You don't get capital allowances for the lease premium. The proportion calculated using the formula is effectively treated as additional rent.Capital Allowances can be claimed for some fixtures and fittings. Take a look here and here for more information.Normally, it's referred to as lease premium amortisation. Only limited companies qualify for this relief.
Hi again.I just noticed an error in my last post. The last sentence is incorrect. The amortisation relief that applies to companies only is for business goodwill, not a lease premium paid for business premises. You have a limited company so the last sentence was academic in any event.
Hi.Can you tell me why you have rated my answer as you have please. My answer as to the tax treatment of the lease premium is correct.
I'm really not bothered if you don't want to pay for the answer but to rate a technically correct answer is not fair.
The reason I am unsatisfied is (i) that you suggested that the associated fees could be capitalised. (ii) the numerous links to HMRC manuals.
(i) I was unsure of your advice so I (i) called up HMRC to check (ii) called three other accountants. THis took me a significant amount of time, and all sources told me that the associated fees could not be capitalised.
(ii) It's not helpful referring me to HMRC manuals. The reason I am on JustAnswer is to get a correct solution quickly, and not to read through numerous HMRC links.