had come across this some time ago ... http://www.fyldetaxaccountants.co.uk/property-articles/are-lender-arrangement-fees-tax-deductible-for-landlords/
But my accountant told me that I have to spread the cost of the arrangement fee over the length of the mortgage … is that right?
No! Your accountant might need a lesson in basic ‘GAAP’ … accountant-speak for ‘Generally Accepted Accounting Practice. Profits of a business – any business, including a property rental business – must be calculated using GAAP. This isn’t optional, however, for a small property rental business the FRSSE (Financial Reporting Standard for Smaller Entities) should also be applied.
The FRSSE states, at paragraph 12.4:
“Where an arrangement fee is such as to represent a significant additional cost of finance when compared with the interest payable over the life of the instrument, the treatment set out in paragraph 12.2 [similar to FRS 4] shall be followed. Where this is not the case it shall be charged in the profit and loss account immediately it is incurred.”
In the circumstances of a typical Buy to Let mortgage, an arrangement fee is not ‘significant’ compared to the interest payable over the life of the mortgage. Therefore, the correct accounting treatment under FRSSE for arrangement fee is to include the fee in the rental accounts when incurred, and in full.
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Which is basically what I said. The default position is that costs are spread over the term. The exception is where the costs are not material. The accountant has looked at it and determined that it is material and therefore has allocated it over the period of the loan. You, who are not privy to any of the detail, are trying to argue that he is wrong.
FYI, FRSSE was withdrawn on 1 January 2016. Small entities now use FRS105. It says much the same thing. Costs are spread over the term unless it is not material (para 9.7).