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Business Taxes - Don't Lose Out Twice

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Business Taxes - Don't Lose Out Twice

Publication Date - 01 April 2011

The guide below explains if/how the taxman can help you in situations when you have had something unfortunate happen to your business and it’s put you at a financial setback. If your business suffers a robbery or other theft of cash/goods, will the Taxman give a deduction for any loss suffered? What do you need to do to make the best of this unfortunate situation?

1. Disappearing Goods

Goods:
Example Ltd had a loss of more than £1,000, because goods in transit were stolen. However, there was an unconnected technical breach of the terms of their insurance policy that prevented a payout. Will the Taxman accept a deduction for this loss in full?

Taxman's Manual:
The Taxman has his own view on specific deductions and so there is copious guidance for inspectors in his Business Income Manual (BIM). So what types of losses can be deducted from profits? “Businesses can suffer losses from theft (by customers or staff); from damage by fire, flood or other agency; from failure by their banker; and from a variety of clauses. Such losses that arise in the normal cause of trading are allowable. Insurance (or other) recoveries in respect of such losses are taxable”.

In Practice:
In principle, therefore, the Taxman appears to have no difficulty in allowing a deduction for this type of loss. However, in practice, some inspectors have been known to argue that the loss could have been covered by insurance and therefore the amount lost is not deductible.

Tip:
Include the loss in your accounts. Point out to a picky inspector that if the loss had been covered by insurance and so a pay-out had been made, there wouldn't have been a loss to claim for. Therefore, as there is an uninsured loss, it is evident that the situation is not covered by insurance.

2. Stolen Cash

Cash:
A subscriber runs a couple of retail stores in different parts of the country. Shortly before Christmas, they took the cash from one store intending to deposit it at the bank. However, due to delays, they decided to take the cash home intending to leave it in their home safe over the holiday period. Unfortunately, whilst in a motorway service station, their case was stolen and the money lost. Their business insurance company refused to pay out because of the facts of the case and their solicitor suspects that the wording of the policy supports its stance. Will the Taxman give tax relief in respect of the stolen cash?

Suspicions:
Unfortunately the Taxman is an overly suspicious person and makes a distinction for losses arising from theft/misappropriation by directors or business proprietors which are not allowable.

In practice:
The practical difficulty when it comes to cash is in persuading the Taxman that you have been genuinely robbed, and not pretended to suffer a loss and pocketed the cash for your own use. He thinks there are all sorts of reasons why you need funds and may wish to invent a crime.

Tip:
Point out that the crime was reported to the police and your insurers at the time. Were witness statements taken? Was CCTV footage viewed? Make a convincing case to substantiate the loss to prevent the Taxman disallowing it on the grounds that there was no supporting evidence.

3. Other Taxes

VAT:
In terms of VAT, if the theft is of goods in transit then there is no supply on which VAT should be charged, therefore there is no output VAT to deal with. However, if the theft is of cash where goods have already been sold the consequences might be different.

Expect heavy resistance if it's cash that's gone missing. If you have enough evidence that the theft actually took place the Taxman will eventually have to allow a deduction for your uninsured loss. Stick to your guns.

 

 

 

 

 

 

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