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HMRC internal manual

Business Income Manual

Specific receipts: insurance and other commission: acceptable accountancy treatment for computing profits

The general rule is that incomings which arise in the course of a trade should be recognised for tax purposes at the time they are recognised in the trader’s own accounts, so long as the accounts are drawn up in accordance with generally accepted accounting practice, see BIM40070. Commission arising to an intermediary, such as an agent or broker, for putting business the way of an insurer (or supplier of some other service) follows this rule. This includes situations where an insurance agent receives commission from an insurance company ‘up-front’ on what is known as `indemnity terms’, at the time a customer enters into a pension contract.

Under current UK GAAP FRS 5 application note G and, in particular, UITF 40 provide guidance on the recognition of revenue where the right to consideration does not arise until the occurrence of a critical event. For example, where a seller does not control the occurrence of a critical event then in general revenue should not be recognised until that event occurs.

FRS 5 application note G and UITF 40 have been replaced by FRS 102 section 23, Revenue. The principles underlying FRS 102 are comparable to those present in both FRS application note G and UITF 40. If an entity does change its revenue recognition approach on adoption of FRS 102 then you should discuss this change with an HMRC compliance accountant.