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TaxVince
TaxVince, Accountant
Category: UK Tax
Satisfied Customers: 965
Experience:  Chartered Accountant >20 years + Qualified IFA
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I'm jacqui, i'm looking accounting entries lease premium,

Customer Question

Customer: hi i'm jacqui, i'm looking for the accounting entries for a lease premium, lease of 15 years, premium 57,000, rental paid in addition, can you help?
JA: Thanks. Can you give me any more details about your issue?
Customer: its a property rental lease for a sole trader. If i capitalise the premium and amortise over the life of the lease, how do I account for the tax releif? amortisation is added back for the tax comp, do I just show the tax relief as like capital allowances on the tax comp, if so where does it go on the tax return?
JA: OK got it. Last thing — JustAnswer charges a fee (generally around $18) to post your type of question to UK Tax Experts (you only pay if satisfied). There are a couple customers ahead of you. Are you willing to wait a bit?
Customer: ok
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Submitted: 11 months ago.
Category: UK Tax
Expert:  TaxVince replied 11 months ago.

Thanks for asking the question.

Im Vince and one of the tax advisors here.

The accounts treatment for the lease premium paid is capitalise the lease on signing the lease contract and then amortised by time apportionment over the life time of the lease which is 15 years. The rent expense is treated as usual - Dr Rental Expense Cr Cash/Creditor.

The clients then gets tax relief for a portion of the lease premium paid and the rent paid.

Expert:  TaxVince replied 11 months ago.

The amount of the premium that he will get tax relief on against profits of the trade profit is the amount of the premium that would have been taxed in the hands of the landlord.

The deductible element is 57,000 - 2% x (15-1) x £57,000 = 41,040

Customer: replied 11 months ago.
how do i reflect this in the accounts and on the tax comp?
Expert:  TaxVince replied 11 months ago.

This amount is time apportioned over the lifetime of the lease. ie in one year you 41,040/15 = 2,736 deducted in your tax return.

Customer: replied 11 months ago.
i get that, where does it go on the tax return?
Expert:  TaxVince replied 11 months ago.

Ok let me work out the numbers:

In the accounts, the full charge for the rental premium of 57,000 would be shown. However you would amortise the this over 15 years ie 3,800 every every year. For tax purposes you need to add back this amounts in your tax computation as non-deductible expense. At the same time you need to claim deductible amount as shown above of 2,736 instead.

Also note if this an individual then private use - adjustments may need to be made.

Expert:  TaxVince replied 11 months ago.

Also note that this is a trading expense like any other trading exense on the tax return.

Customer: replied 11 months ago.
i get all that, where does it go on the tax return? If i shoe the income and expenditure as per the accounts, add back depreciation and amortisation, claim capital allowances, then what? there is no box for this adjustment.
Expert:  TaxVince replied 11 months ago.

You show the expense on the trading expense; and the amortisation added back in the amortisation section.

Expert:  TaxVince replied 11 months ago.

If you are using the company return you can put this through charges paid.

Customer: replied 11 months ago.
if I show the expense as additional rent box 21 on page SE2 this will change the profit totalm thus getting the deduction, however the figures on page SE5 , the balance sheet, will not balance
Expert:  TaxVince replied 11 months ago.

As this is not an accounting issue, it should not affect your P&L or B/S but just at a tax adjustment. That is why i aslo suggested that you can put this through other charges and put an explanaiton note.

Customer: replied 11 months ago.
this is a sole trader, I am completing a self assesment tax return. If I change the figures on the trading page than this means that the figures on the balance sheet page are out. This is on the tax return, not the accounts
Expert:  TaxVince replied 11 months ago.

Are you filing the self assessment online? I can assist you with the filing if this helps.

Customer: replied 11 months ago.
no I have forbes pro tax
Customer: replied 11 months ago.
the only place I can think of putting it is with the capital allowances or in box 62, neither of which seem quite right
Expert:  TaxVince replied 11 months ago.

Im not sure what Forbes pro tax use - but if it was HMRC online assessment, you could simply deduct this in other Other tax adjustments and put a note. Im surprised there are no other adjustments section on your system.

Customer: replied 11 months ago.
If you were completing a paper return what box would you put this amount in, somewhere on the self employment pages?
Expert:  TaxVince replied 11 months ago.

Definately under "Business expenses" Rent, rates, power and insurance costs box 14/21 depending on whether short/long form. If not, other business expenses.

Customer: replied 11 months ago.
ok then that changes the total of the profit, which then differs from the total profit on the balance sheet page, box 96
Expert:  TaxVince replied 11 months ago.

Leave this with me and i will get back shortly.

Customer: replied 11 months ago.
thanks
Expert:  TaxVince replied 11 months ago.

Thanks for your patience. I had a chance to chat with my fellow advisers here.

The problem of trying to input deductible expenses/non deductible expenses that are not in the accounting P&L on the self assessment return if you want to balance the balance sheet. A few of my colleagues suggested either of the following options which are acceptable to HMRC:

1 . Adjust the accounts by deducting the deductible rent premium before you file the return ie Dr Deductible rent premium Cr Asset - Rent Premium. That way your balance sheet on the return wont be affected. OR

2. Show the deductible rent premium in other boxes like capital allowances (and put an explanatory note).

3. Show the deductible amount net of amortisation ie since you need to add back 3,800 and deduct 2,736 ie add back only 1,064 (again put an explanatory note).

Hope this helps.

Customer: replied 11 months ago.
Thanks for your help Vince, that's what I need
Expert:  TaxVince replied 11 months ago.

You are welcome. If you have no further comments, could you please rate the service before you go.

Customer: replied 11 months ago.
how do i rate Vince, the area at the top is greyed out?
Expert:  TaxVince replied 11 months ago.

Thanks. Let me check with Justanswer support service as I only use the site from the "tax adviser" screen and not the client's side.

Expert:  TaxVince replied 10 months ago.

Thanks for your patience. IT support has just told me the rating button was greyed out but now sorted. In addition there seem to be an issue with your PayPal account as you appear to have an open dispute. You can discuss this with Justanswer support here: http://ww2.justanswer.co.uk/en-gb/help

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