How JustAnswer Works:

  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.

Ask TonyTax Your Own Question

TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15753
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
13905389
Type Your Tax Question Here...
TonyTax is online now

I have just puchased empty commercial premises which I have

Resolved Question:

I have just puchased empty commercial premises which I have converted into a restaurant. The lease premium on the property was £48k and the lease runs for 9.5 years.

My question is how would I disclose the lease premium in my company accounts and whether the lease premium would be eligible for capital allowances, and particularly which capital allowances. My understanding is that Annual Investment Allowance is only available for fixtures and fittings?
Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.
Hi.

Can you confirm that your company paid the lease premium and that it is a new lease as opposed to an assignment or sale to you of an existing lease please.
Customer: replied 2 years ago.

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?

Expert:  TonyTax replied 2 years ago.
Thanks.

Leave this with me while I draft my answer.
Expert:  TonyTax replied 2 years ago.
Hi again.

The three month deposit can be shown as a long term debtor. The lease premium and expenses should be capitalised in the accounts and amortised over the term of the lease as its assignment value decreases. The rent can be claimed as an expense in the profit and loss account.

As for the tax treatment of the lease premium, so long as this is a new lease, the tax treatment is outlined here, here, and here. In your case, assuming that the property was used in your business from the date of payment of the lease, you will be entitled to claim tax relief for £39,840 of the premium (£48,000 x ((50 - 8.5) / 50 as an expense in your profit and loss account. Some people put the full yearly amount which in your case is £5,052 in the profit and loss account and add back the disallowable part (£859) in the tax computation. The amount claimed needs to be adjusted for any days that the premises is not used in the business.

I hope this helps but let me know if you have any further questions.
Customer: replied 2 years ago.

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?


 


Thanks

Expert:  TonyTax replied 2 years ago.

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.

Expert:  TonyTax replied 2 years ago.

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.

Expert:  TonyTax replied 2 years ago.

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.

Customer: replied 2 years ago.


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.

Expert:  TonyTax replied 2 years ago.
All the experts here use HMRC manual links as well as links to other sources. There are many sources on the internet claiming knowledge on tax, the online equivalent of the proverbial bloke in the pub if you like, both of which would be best ignored. That's why I use the HMRC manuals and other professional online publications which I cannot give you links to as the areas I look at are the private membership areas. The page here refers to legal fees incurred on the renewal of a lease being capital in nature but which may be allowed as a revenue expense if small. BIM46415 here backs up the capital nature of legal fees incurred on the acquisition of a new lease. My job would be impossible if I ignored what HMRC manuals said. Its always possible to find someone who will disagree with HMRC manuals. That doesn't make them incorrect.

I note you didn't query their computation of the way the premium is dealt which came from the HMRC manual. HMRC have told me in the past to capitalise legal expenses which are related to lease premiums but I've seen people claim them as a revenue expense. The link I gave you previously said that only the legal fees on the renewal are deductible as a revenue expense.

I won't be taking any lessons from most accountants on tax unless they specialise in tax. Many accountants come to this site and ask the most basic of tax questions.
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15753
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
TonyTax and other Tax Specialists are ready to help you

What Customers are Saying:

 
 
 
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C.
< Previous | Next >
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C.
  • This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex
  • Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult. GP
  • I couldn't be more satisfied! This is the site I will always come to when I need a second opinion. Justin
  • Just let me say that this encounter has been entirely professional and most helpful. I liked that I could ask additional questions and get answered in a very short turn around. Esther
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C.
  • This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex
 
 
 

Meet The Experts:

 
 
 
  • Sam

    Sam

    Accountant

    Satisfied Customers:

    7088
    26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
< Previous | Next >
  • http://ww2.justanswer.com/uploads/TA/Tax Expert/2013-8-21_231010_sam.64x64.jpg Sam's Avatar

    Sam

    Accountant

    Satisfied Customers:

    7088
    26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
  • http://ww2.justanswer.com/uploads/BI/bigduckontax/2013-8-12_222058_1.64x64.jpg bigduckontax's Avatar

    bigduckontax

    Accountant

    Satisfied Customers:

    2333
    FCCA FCMA CGMA ACIS
  • http://ww2.justanswer.com/uploads/TA/TaxRobin/2013-8-28_16186_femalebusinessprofessionalbinderhand11038485.64x64.jpg TaxRobin's Avatar

    TaxRobin

    Tax Consultant

    Satisfied Customers:

    524
    International tax
  • /img/opt/shirt.png taxadvisor.uk's Avatar

    taxadvisor.uk

    Chartered Certified Accountant

    Satisfied Customers:

    2845
    FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
  • http://ww2.justanswer.com/uploads/MS/MsAM/2012-6-9_16426_anna.64x64.jpeg Anna's Avatar

    Anna

    Teacher, writer, biologist

    Satisfied Customers:

    270
    Great research skills, variety of work experiences, teaching experience.
  • http://ww2.justanswer.com/uploads/PD/pdheslin/2012-6-6_232056_pambig.64x64.jpg pdheslin's Avatar

    pdheslin

    Consultant

    Satisfied Customers:

    51
    20+ years of internet site creation and search engine optimization. Dozens of search tools at my disposal.
 
 
 

Related Tax Questions