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HMRC internal manual

Business Income Manual

Specific receipts: unclaimed balances: accounting treatment

Timing depends on circumstances

Income arising from a trading transaction is a trading receipt. In all cases, such receipts are trading receipts if they relate to a trading transaction at the time of payment. However, the time at which they are recognised as income in the accounts by inclusion in the profit and loss account will depend upon the circumstances. Guidance on generally accepted accounting principles (GAAP) and the relationship with tax can be found at BIM31000 onwards.

Traders do not normally recognise unclaimed balances as trading receipts when first received. Such balances may remain in the trader’s possession for a considerable period until no other person has a right to claim them.

The contract may stipulate when the money will belong to the trader if the customer makes no claim. In these circumstances, the receipt should be brought into the computation of trading profits by following the accounting treatment and, at the latest, when stipulated by the contract.

In the absence of any special contractual or statutory provision, the money belongs to the trader when the payer’s remedy to recover the sums is time-barred by statute. When this happens, the balances acquire a different quality and become trading receipts to be brought into the computation of profits (Jay’s-The Jewellers Ltd v CIR [1947] 29 TC 274). For an explanation of the Statute of Limitations and a discussion of this case, see BIM40230.

Health warning

This page is part of the section of the Business Income Manual on unclaimed balances. You should read the whole section to understand this topic. See the contents page at BIM40200.