These provisions apply to any accounts ending on or after 1
August 2001 and to any returns delivered or amended on or after
that date (FA02/SCH22/PARA17).
These special provisions apply when expenses paid by a
business were allowed for tax purposes in a previous accounting
period on the old basis and the treatment changes so that the
expenses would be allowable on the new basis over several future
accounting periods.
The common example of this is known as ‘deferred
revenue expenditure’. Such expenses paid by a business had
been allowed as a deduction in the tax computation when the money
was paid out, although the accounts of the business had not shown
the deduction in the profit and loss account. The tax treatment
changed so that the expense is allowable for tax purposes when it
appears as a deduction in the profit and loss account,
BIM42215.
For example, a business paid money on repairs to its
premises. In its accounts this expenditure was
‘capitalised’ - that is it was added to the value of
the premises on the balance sheet. The premises were then
depreciated. Part of the depreciation charge relates to the repair
expenditure and part to the historic cost of the building. The old
tax treatment was to allow a deduction for the repairs expenditure
when the money was spent. The new tax treatment is to allow the
deduction when the depreciation charge relating to the repair
expenditure is taken to the profit and loss account.
In these cases the expenditure has already been allowed for
tax purposes. Without special provisions the effect of the change
of basis legislation in FA02 would be to make a positive adjustment
for all of this expenditure in the year of change.
The special provisions say that when the expenses would be
brought into account over more than one period in the future the
positive adjustment should not be made, but the expenses should not
be deducted again.
