Your dilapidations liability and FRS102

by Ian Laurie, Director

Corporation tax incurred by private companies, specifically tenant occupiers, can be an area of missed opportunity without the correct advice on any future dilapidations liability.

In respect of commercial operating leases, the Financial Reporting Standard 102 (FRS102), which replaced FRS12, allows for a future dilapidations liability to be termed as an expense which can be included within the profit and loss account of the firm. Until the obligation is completed, deduction can then be allowed within the company’s tax computation.

The current squeeze on profits of many occupiers, and in particular retailers, means that reducing tax burdens could be a vital part of any forward trading plan. 

  • A tenant’s dilapidation provision is deductible for corporation tax purposes if certain FRS102 criteria are met as follows:
  • The business is under a present legal or constructive obligation – Ordinarily this would require a signed lease contract, which gives rise to a legal obligation for the tenant to carry out certain reinstatement, repairs and redecoration works over the term of the lease.
  • The legal obligation is as a result of a past event – In respect of leasehold occupation of a property, this would ordinarily constitute the end of the lease.
  • Transfer of economic benefits arising from legal obligation – Following assessment and advice, it would need to be demonstrated that expenditure would be required to complete dilapidation works to comply with the lease obligations, or make a payment to the landlord for damages.
  • Reliable estimate of cost – A professional assessment of the cost of dilapidation works is provided together with robust supporting evidence.

Watts Group has extensive experience in dealing with lease end dilapidations, and regularly prepare FRS102 compliant dilapidations assessments for a variety of corporate clients, enabling them to provide a reliable estimate of their Leasehold Dilapidations costs. As with all accounting matters however it is vital that advice be sought from a qualified accountant before proceeding with any inclusion of costs against Leasehold Dilapidations in your Financial Statements.

For more information please contact our Director, Ian Laurie on +44 (0)161 831 6180.

Ian Laurie BSc MRICS

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