Court ruling
On 18 January 2021, The Supreme Court ruled that insurance companies must pay out on business interruption insurance policies which included clauses for loss of income resulting from notifiable diseases (coronavirus) and enforced closure of business premises.
Taxable or not?
A few reports suggest that only if a business received tax relief for the policy premiums would it be taxed on any payouts. Whilst this is true for some types of insurance, it’s not the case for business interruption insurance where the payout is for loss of profits or turnover. The money received should be treated for income and corporation tax purposes in the same way as trading income.
Tax timing
Insurance proceeds are taxable income for the accounts in which they are recorded. In turn, this depends on whether accounts are prepared using generally accepted accounting principles. If so, the insurance proceeds should be included in the accounting period for which the profit/turnover was lost. However, if a payout wasn’t “virtually certain” it ought to be reported in the accounts covering the date when it became so.
Government grants
Most insurers gave an undertaking in September 2020 that they would not deduct government coronavirus support grants from business interruption payouts. Further, payouts don’t count as income for the purpose of working out entitlement to government grants.
Source: Tips&Advice
Comments