Insurance payouts to cover the theft of assets is a taxable income, which will be off set by the loss of the assets. Similar to if an asset is sold. In the cas eof insurance, the insurer has paid for the asset.
A sum received under a policy insuring a fixed asset against damage or loss is a capital receipt. However, any allowable expenditure incurred in making good the damage or loss by repair, renewal or by replacement should be reduced by the amount recoverable (ICTA88/S74 (1)(l)).
If the reduction is effected in the trader's accounts by crediting the recovery as a trading receipt when received, rather than by deducting the net cost of repairs etc when incurred, no objection need be made.
If the insurance recovery is treated as a disposal value for capital allowance purposes (see CA23250) it should not be deducted from the repairs etc expenditure.
Just received my first call of the day and it has led to this post. I complete the book-keeping and accounts for a garage.
Three months ago they had a break in and had almost everything stolen, computers, tools etc. the only thing of value left was the MOT bay.
This week they have received a cheque for £ 49k to cover all receipts that they could provide for tools and computers.
They have told me today that they have decided to close the garage and just pay the remaining bills until their lease ends in July 2012.
What I am concerned about is the insurance money received. They have provided a breakdown of where the money is going to be spent, but it is mainly on creditors bills as they will now not be replacing the stolen assets.
It may seem like a stupid question but as the assets were given a replacement value significantly higher than the true value of them and per the Capital Allowances the value is almost nil as they have already had tax relief.
My question is, is the insurance money treated as taxable income. I think it shuold be but obviously the client does not agree.
They have paid insurance all these years to cover the items should anything happen. I know some insurance firms offer the 'new for old' so they have given him the money to buy new equipment... do they know that hes going to take the money and 'run' if they dont then they should as they may turn round and offer him less than the insurable value of the assets.
If he's taking the money, and not replacing the assets then my alarm bells would be ringing to say, maybe he was in too much of a mess with the business and 'arranged' for the theft to take place to get the money... insurance fraud anyone? I could be just overthinking it, but a call to the insurance firm to ask about it may be worth it, and you can ask them the same question (about tax on the money given) when you have them on the phone... ;)
