Sorry a bit basic this.
An individual runs an FHL. The terms and conditions require payment of a non-returnable deposit at the time of booking, some weeks in advance of occupation.
My only question is when should the income be recognised. Obviously relevant only when the two events span tax year ends.
My inclination is to defer the income until the period of occupation. This seems to align with PIM1051, final para. My main area of doubt with that is that the landlord does not really incur any (significant) costs during the period of occupation against which the deposit can be matched. Coupled with the non-returnable nature, I was wondering whether PIM1051 applied.
Currently I still lean in favour of the PIM1051 treatment, not least because the FHL qualification tests are then applied to the same period as the income being tested, although I am always chary of applying logic to legal interpretation.
With kind regards
Clint Westwood
Replies (8)
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That's not quite my question. Presumably all tenants pay rent with effect from the date of occupation. My question is whether the "non returnable deposit" you refer to is a payment on account of that rent or additional to it.
Ignore John
And Ignore PIM1051; it is not an accounting standard, and profits must be calculated under GAAP.
We are all agreed that it is income, since it is not repayable to the client if they choose not to occupy the property.
The income (whatever it is - I have no idea what point John is trying to make) is not earned until the client at least has the opportunity to occupy or not occupy the property, as a matter of their choice.
If the property burnt down, and you had to say to the client, sorry you cannot come, trust me, you will be repaying that deposit.
The income is earned by having the property available for the client to occupy at the pre-arranged time.
The point I am trying to make is whether it is a time based charge for occupation of the property (assuming that occupation is in fact taken up) or whether it is in fact a one-off moving in fee payable in addition to the rent.
The question is not about whether it is income, but in which period the income should be recognised. In my opinion, the answer to that question is affected by the answer to the question I am asking.
I do not object to being disagreed with. I do however object to persons I am trying to help being told to ignore what I say.
Booking fee
Until the OP tells us we don't know whether the receipts he is asking about are akin to a booking fee or simply payments on account of the future rent, which as you say will affect the timing of their recognition as income, which is the very question the OP is asking. That has been my point all along, which I am pleased to see you now recognise the significance of at last.
Unless...
If the customer indicates before the year end that they will not be taking up the accommodation in the following year, then I would say the date that is communicated to the owner is the date the income should be recognised.