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HMRC internal manual

Business Income Manual

Specific deductions: provisions: allowability for tax

A provision made in accounts is the recognition of a liability, the timing or amount of which is uncertain. Provisions are distinguished from trade payables and accruals and are reported separately in accounts.

The word ‘provision’ is also often used to refer to the recognition of a reduction in the carrying amount of an asset, for example, a debt impairment provision or an inventory (stock) provision. The rules governing such ‘provisions’, both in accountancy practice and tax law, are different, and covered elsewhere in this guidance (stock/inventory valuation BIM33100 onwards, debt impairment BIM42700 onwards).

Otherwise a provision made in accounts will only be allowable for tax purposes if:

  • It is in respect of allowable revenue expenditure and not for example, in respect of capital expenditure see RTZ Oil & Gas Ltd v Elliss [1987] 61TC132.
  • It is in accordance with Generally Accepted Accounting Practice (GAAP).
  • It does not conflict with any statutory rule governing the time at which expenditure is allowed.
  • It is estimated with sufficient accuracy, see BIM46555.