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HMRC internal manual

Business Income Manual

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HM Revenue & Customs
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Specific receipts: reverse premiums: timing of the receipt: the normal case

A reverse premium received is normally taxed in accordance with the accountancy treatment.

Having simply prescribed that a reverse premium is a revenue receipt, the legislation leaves the time when the receipt must be brought into account in computing trade or property business profits to be governed by generally accepted accounting practice in the normal case. Unless avoidance is involved, a reverse premium will usually be brought to account for tax purposes as it is credited in the accounts. The avoidance case is considered in BIM41130.

Note this does not necessarily mean you are obliged to accept the spread of the receipt actually adopted in the accounts. The timing of the receipt for tax purposes must reflect generally accepted accounting practice.

For UK GAAP, recommended accountancy treatment of reverse premiums is in the Urgent Issues Task Force Abstract 28 (UITF28) and FRS 102 section 20. The IAS equivalent is SIC 15. Both FRS 102 and SIC 15 require the receipt to be spread on a straight line basis over the term of the lease. UITF 28 requires 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 generally accepted accounting practice has not been followed, or the anti-avoidance rule in BIM41130 applies.

For more about the relationship between tax and accountancy see BIM31000 onwards.