I have a situation where £100,000 of interest on a loan from an individual has been included as a credit to WIP in a set of accounts (the company develops property) with the corresponding debit posted to the P&L. This interest was not paid within 12 months of the financial year end so a deduction for CT should not be allowed. If the interest was simply posted to the P&L, my response would be to simply disallow it. However, it has had an impact on the WIP too. Does anyone have an opinion on what should be done? I think it should simply still be disallowed from the P&L and kept in WIP as this will be adjusted for when the property being developed is eventually sold. Any guidance would be massively appreciated!
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Forgive me ...
... but why has it been credited to WIP?
Surely the credit is to accruals/other creditors and the debit to either P&L interest charge or WIP.
Let me get this straight
Company is developing property.
It has borrowed £100k to (help) finance that development.
The lender has charged interest on that loan.
That interest has not yet been paid.
The interest cost has nevertheless been reflected in the profit and loss account.
The creditor balance has been taken to WIP rather than to creditors.
Would someone please explain to a non-accountant (me) how that treatment, particularly the last step, is correct.
As the inclusion of the interest provision has no effect on the profit, common sense says that there needs to be no adjustment in the CT computations for it. But common sense does not always apply in the world of tax.