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Even disasters have tax consequences: the implications of insurance receipts
KEY POINTS
- Insurance proceeds may include both income and capital elements.
- Compensation for loss of income stock and repairs will be taxed as income.
- Generally accepted accounting practice principles will apply so tax may be payable before receipt.
- Adjustments to capital allowances or capital gains tax computations may be required.
- Business records may need to be recreated to enable the correct tax treatment to be ascertained.
Businesses that are unlucky enough to suffer an event such as a fire flood or an infestation face many problems. The disruption to the trade or business caused by lost or damaged business records and the need to repair premises and replace other assets cannot be underestimated.
While adequate insurance cover may soften the blow the insurance monies received will need...
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