A community football club (Ltd Co) has an artificial pitch (3G) which will need renewing at some point in the future as it only has a limited lifespan. So they need to put money aside each year to cover the cost of this in say ten years time.
What are the corporation tax implications? The money hasn't been spent - but still needs providing for. Is the profit made each year still taxable?
Can it be put into a "Provision" Account? Would the money need to be ring-fenced in its own account in which case? (This would seem a sensible suggestion regardless of Corporation Tax issues).
The community club does not own the ground - it is a 40 year lease - if this has any relevance to the answer.
Your thoughts would be appreciated.
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Never buy black socks from a normal shop. They shaft you every time.
It doesn't meet the definition of a provision (IAS37/FRS12) so no provision can be made for it.
Definition of a provision (from memory so probably not word perfect) :
A present obligation as a result of past events (there is no present obligation to replace the pitch)
It is probable that settlement of the obligation will require an outflow of resources embodying economic benefits
The amount of the obligation can be measured reliably (How can they tell what the pitch will cost in ten years?).
The only time that the provision would have been allowable is if there was a legal or constructive obligation to replace, such as an entry in the lease agreement requiring replacement every ten years as part of the lease terms.
Whether such is allowable for tax purposes would depend upon how it is defined as provisions cannot be made for expenditure that is capital in nature.
Abandoning thoughts of recognising this as a provision and going onto capitalisation.
New turf would be treated in the same manner as relining a kiln in that it restores previously consumed economic benefits (IAS16/FRS15) and as such would be seperately capitalised and amortised over useful economic life (which you estimate as ten years).
Interested to read any alternate views.
HTH,
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
No probs Peasie. It actually reminded me of a question from an audit exam where provisions had been incorrectly made.
I'll sort out the above miscreant after my meetings.
Worry not, I'll leave a crater in the thread so that your post makes sense,
all the best,
Shaun.
p.s. I'll also be visiting his other three posts as well.
p.s. all posts now visited and sorted out.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
