Salesman provision

Hello,

My client is self employed salesman selling insurance policies. His income is a percentage of the value of the policies sold. If any of the clients default on the payment within 2 years of taking up the policy salesman has to refund the provision received tot the provider.

My client has a chance to be fully employed and to end his self employment. The questions is - after ending self employment how to account for the refunds as the income declared will be lesser by the amount that has to be paid back.

Thank you for your help.

Comments

  • MarieNoelleMarieNoelle Trusted Regular Hampshire/Surrey borderModerator, MAAT, AAT Licensed Accountant Posts: 1,447
    Hi @Maggie75

    If he has to refund the commission after trade has ceased the expense may come under post cessation expenses - see BIM9000

    In order to be an allowable post-cessation expense:
    1.the trade must have ceased, and
    2.the expense would have been deductible in calculating the trading profits.


    For ways to obtain relief for the losses see BIM90090

    Hope this helps.
    Bertie
  • BertieBertie West Midlands Registered Posts: 376
    edited March 2017
    I don't believe it is a revenue recognition issue.

    The commission would have, or should have, been recognised already whereby the terms of the insurance were agreed between the insurer and the policy holder - this surely is the point of recognition.

    In the final accounts a provision should be made as per FRS 12 - ITTOIA 2005 s25.

    The provision will satisfy the 'of a revenue nature' and the wholly and exclusively test.

    It is probable that a transfer of economic benefit will be required to settle an obligation - past history of the business will show how many, on average, renegade on their insurance contracts.







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