Righting wrongs

The taxpayer’s business provided services to taxi drivers who had been involved in no-fault vehicle collisions.

The dispute centred on the tax treatment of receipts for the hire of cars to the drivers while their own were off the road.

The taxpayer’s practice was to produce a rental contract for the replacement vehicles. The charge to be levied was left blank until the insurance company of the other driver admitted liability after which figures were entered and a claim was made.                                                                              

The insurance companies often refused to pay the full amount claimed and commonly agreed to a lower figure. The taxpayer’s accounts had been prepared on a cash basis in this regard.

HMRC contended that accounts should be on an accruals basis to comply with UK generally accepted accounting practice. The department issued an amended assessment for 2004/05 – the first year of the business – increasing the assessable...