Re-submit or reverse
A client as at year end had not received a rental invoice or contract from landlord even though they had been a tenant for the 12 months of the accounting period. Client had not paid any rent. Landlord lets out spare offices to 4 tenants (one being my client). Only one tenant has received a contract and is paying rent. A second tenant has been in discussions with landlord re rent. Client doesn't provide any services in lieu of rent (the other three tenants do and invoice the landlord accordingly) so there is no issue of bartering and VAT etc.
Client had a reasonable belief that rent was payable based on the one tenant paying rent. Provided for rent in the accounts based on the rent of the other tenant.
However it looks like the landlord will charge rent going froward only but not charge rent for the months gone by - essentially giving a rent free period. Obviously the provision needs to be reversed. Does the client need to resubmit the tax return as the provision now appears to be invalid or is it a simple reversal of the provision and then treated as taxable income in the current year.
My concern is that in the last accounting period the business may a substantial profit but may only break even in this current financial year (not at the end of the year yet so difficult to tell) but the reversal of the provision will almost certainly result in a taxable profit. So tax will be paid.
I am concious that it looks like cash flow "massaging".
therefore resubmit or reverse?