The following Corporation Tax guidance note by Tolley provides comprehensive and up to date tax information covering:
A provision is effectively an estimate of expenditure which may have been incurred or losses which may have been sustained. They do not necessarily reflect actual expenditure but are a reliable estimate in working out the cost of a particular item to a business.
Provisions are only allowable for tax purposes in certain circumstances. An important case is Owen v Southern Railway of Peru Ltd whereby HMRC only accepted a provision provided it had been specifically calculated. HMRC does not like companies simply putting through a provision in the accounts and wiping out substantial amounts of taxable profit. Where a company can show a fundamental basis for the figures computed, then the provision would be allowed. This case sets the principle that provisions are only allowable where they are specific.
HMRC’s bi-monthly publication, Tax Bulletin issue number 44 (now incorporated into Business Income Manual) released in December 1999, sets out HMRC’s views on the deductibility of provisions. BIM46510 states that HMRC will accept provisions as deductible if they:
The entity must prove that all four of these criteria have been met bef
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