Tax on one off payment?
Discussion
If a Ltd company was given a one off payment upfront for negotiating a contract extension for a further 10 years, i.e. 10 yrs + 10 yrs = 20 yr contract. Would the tax be the same on that one off payment, if the new contract was an OPTION to extend another 10 years at the end of the old contract.
Any advice very much appreciated.
Any advice very much appreciated.
Eric Mc said:
Is there any prepaid element to the income or is any of the income refundable if the contract doesn't get renewed at a later date or is terminated early?
Hello Eric,No there is no prepaid element, or any refundable income. There is no early termination problem either. Just a straight forward one-off payment. With the normal rent payable every year - quarterly. I am presuming corporation tax at a rate of 22%, if this is arranged before march 2009.
Thank you.
This is not really a Corporation Tax issue but actually an accounting issue. In other words, in what accounting period should this transaction be posted to the business records?
The answer is that the income generated by this transaction needs to be included in the accounting period to which the income relates. So, if the income is "belonging" to a particular accounting period, it will therefore appear in the accounts covering that accounting period. This is known as the "matching" concept (i.e. income and expenditure is "matched" to the period it relates to).
Any profit generated by that transaction will therefore appear in that accounting period and will be subject to whatever Corporation Rates apply. So, depending on the financial year end of your company, the Corporation Tax rate might be 21% or 22%.
The 21% rate applies to taxable profits before 31 March 2009 and 22% to profits after 1 April 2009.
The answer is that the income generated by this transaction needs to be included in the accounting period to which the income relates. So, if the income is "belonging" to a particular accounting period, it will therefore appear in the accounts covering that accounting period. This is known as the "matching" concept (i.e. income and expenditure is "matched" to the period it relates to).
Any profit generated by that transaction will therefore appear in that accounting period and will be subject to whatever Corporation Rates apply. So, depending on the financial year end of your company, the Corporation Tax rate might be 21% or 22%.
The 21% rate applies to taxable profits before 31 March 2009 and 22% to profits after 1 April 2009.
Edited by Eric Mc on Tuesday 30th September 15:40
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