Commentary

B2.504 Period in which expenses are recognised

Business tax
Business tax | Commentary

B2.504 Period in which expenses are recognised

Business tax | Commentary

B2.504 Period in which expenses are recognised

It is normal accountancy practice to deduct a sum in the profit and loss account for liabilities which have actually accrued during the accounting period. Such deductions will usually be allowed in computing the taxable profit of that period1.

In some circumstances, a deduction may also be made for a liability which has not yet accrued but for which there is a reasonable expectation that it will arise in the future, known as a provision. The tax treatment of such a deduction will depend on the facts of a particular case, the nature of the business concerned and, particularly, the degree of contingency.

Where the provision relates to specific expenditure which has already accrued and the amount of the provision can be calculated with a reasonable degree of accuracy, it is known as a 'specific provision'. Specific provisions will usually be allowed for tax purposes, provided the following conditions are satisfied:

  1.  

    •     it relates to allowable revenue expenditure, rather than capital expenditure

  2.  

    •     it is calculated in accordance with GAAP2

  3.  

    •     it does not conflict with any statutory rule in force at the time the expenditure is allowed

  4.  

    •     it is estimated with sufficient accuracy

See B2.401.

By contrast, a general provision, eg for repairs to property generally, against which expenditure will be charged as and when it arises, is unlikely to be allowed for tax purposes. The

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