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HMRC internal manual

Banking Manual

Bank compensation restriction: unwinding provisions: difficulties with bank compensation provisions

The bank compensation measure is slightly different to the simple situation set out at BKM206100. Firstly, the provision may be long running and the estimated liability may have been revised on a number of occasions. Secondly there is a split accounting period treatment at commencement (see    BKM209100)

In general, when a provision is updated the update should reflect a bank’s current best estimate of the remaining liability. As such, it is reasonable to expect that the most recent update will be the most accurate. HM Revenue and Customs will therefore accept that where a provision is reversed, it is treated as non-taxable up to the limit of the previous disallowance. 

See examples at BKM206300 and BKM206350.