Having simply prescribed that a reverse premium is a revenue
receipt, the legislation leaves the timing of the charge to be
governed by correct accountancy treatment in the normal case.
Unless avoidance is involved, a reverse premium will normally be
brought to account for tax purposes as it is credited in the
accounts, in accordance with generally accepted accounting
practice. The avoidance case is considered in
BIM41130 (ICTA88/S21A (1) and FA98/S42
(1); ITTOIA05/S25 and ITTOIA05/S272).
Note this does not necessarily mean you are obliged to accept
the spread of the receipt actually adopted in the accounts. It
means you are entitled to be satisfied that the accounts treatment
does reflect generally accepted accounting practice.
Recommended accountancy treatment of reverse premiums is in
the Urgent Issues Task Force Abstract 28 (UITF28). The receipt is
to be spread on a straight line basis over either the term of the
lease, or to the date of the first rent review expected to adjust
the rent to prevailing market rate, whichever comes first. Thus,
there will be no need to adjust the commercial profit shown in the
accounts unless either there is reason to believe UITF28 has not
been followed, or the anti-avoidance rule in BIM41130 applies.
For periods of account beginning on or after 1 January 2005
companies and other entities, for example partnerships and unit
trusts, may use international accounting standards for tax
purposes. The international standard equivalent to UITF28 is SIC15
(lease incentives). They give different results:
For more about the relationship between tax and accountancy – see BIM31000 onwards.
