Have I made sense of this?

stefanboro

Every morning I spend an hour doing some CPD.

I have been revisiting some areas in regards to allowable expenditure and for some reason have been reading about damages for injury to a customer.

The case I have been reading is Strong & Co of Romsey Ltd v Woodfield 1906 - a customer was injured when staying in an inn (due to a falling chimney) and claimed compensation. The compensation was not an allowable expense as it did not incidental to the trade.

I have been trying to think why this is so - and then the penny drops, I think.

It's all about remoteness. Using the same example of an inn - the nature of the trade is basically one of accommodation. So, if the bed broke and the guest was injured this would arguably be less remote to the trade of inn keeping and thus more likely to be allowable.

Basically, am I on the right lines in my line of thinking here?

And then of course any penalties for an infraction of the law, regardless of how remote to the trade, are automatically disallowable.

jilt

Interesting, my thinking is the company was found negligent hence the compensation, so it's classed as any sort of fine would be and is dissallowable. Then again my logic is not always right lol

stefanboro

jilt wrote: »

Interesting, my thinking is the company was found negligent hence the compensation, so it's classed as any sort of fine would be and is dissallowable. Then again my logic is not always right lol

No I think that's a valid line of thought but it was not the reason given in this case.

I think it's like a plumber being sued for faulty pipes as opposed to being sued for accidently running over someone's foot - a very simplistic example.

deanshepherd

I can't see the difference between a chimney falling on a customer causing injury and a bed breaking and causing injury. I would wager that if the first is not allowable then second wouldn't be either.

The judge stated that only costs incurred in earning profits are allowable. Compensation payments do not contribute to the earning of profits.

If a plumber fitted faulty pipes he would either correct them at his own cost or issue a refund - both allowable for tax. If those pipes caused the house to be flood damaged then any compensation paid would not be allowable.

stefanboro

deanshepherd wrote: »

I can't see the difference between a chimney falling on a customer causing injury and a bed breaking and causing injury. I would wager that if the first is not allowable then second wouldn't be either.

The judge stated that only costs incurred in earning profits are allowable. Compensation payments do not contribute to the earning of profits.

If a plumber fitted faulty pipes he would either correct them at his own cost or issue a refund - both allowable for tax. If those pipes caused the house to be flood damaged then any compensation paid would not be allowable.

C'mon Dean - for the sake of argument use your imagination and say that the pipes exploded and a nut hit the client of the plumber in the leg causing injury etc etc. It's the general principle that I was referring to.

Basically, and as BIM38510 states, damages incurred as a result of normal trading operations are allowable.

So, I am trying to make sense of the above ruling and how you would differentiate between trading and non-trading operations.

JodieR

This is an interesting point - I guess that most of the time your insurance would pay out in these circumstances so it wouldn't really apply.
It's making me wonder about a client of mine who's a gardener and last year paid someone I think £100 because he was mowing a lawn and there was a stone in the lawn which got flung at a window and broke it so he paid the customer's insurance excess to repair it. I did put the £100 through as an expense for him, I do hope that was right!

stefanboro

JodieR wrote: »

This is an interesting point - I guess that most of the time your insurance would pay out in these circumstances so it wouldn't really apply.
It's making me wonder about a client of mine who's a gardener and last year paid someone I think £100 because he was mowing a lawn and there was a stone in the lawn which got flung at a window and broke it so he paid the customer's insurance excess to repair it. I did put the £100 through as an expense for him, I do hope that was right!

Ooohhh you're big trouble now! :001_tongue:

I think that case differs to the guidance because the payment was essentially discretionary and not legally enforcable at that point in time but to be honest this sentance is a bit of a guess.