Treatment of compensation received for road accident

lala99lala99 Registered Posts: 15
edited July 12 in VAT
Hi. A cheque has been received from the insurance company as compensation in road traffic accident. I have spoken to hmrc who tell me it's outside the scope of vat. So, how do I show it in the books? Is it still income?
Thanks!

Answers

  • douglasstrouddouglasstroud Registered Posts: 129
    Who received the cheque? Why would it be income?
    ncacat
  • lala99lala99 Registered Posts: 15
    Hi. Thanks for responding. The payment is for personal injury of the director suffered in a car accident while driving for work. but the insurance company made it out to the name of the limited company for some reason. So does it have to be accounted for as other income. In which case the company will pay tax on it I guess. But should the company then pay it out to the director. I'm thinking that you shouldn't be paying tax on a personal injury compensation payment?
    Thank you
  • douglasstrouddouglasstroud Registered Posts: 129
    Just contact the insurance company and ask them to cancel that cheque and to reissue another in the correct name, as you say it is the Director who suffered the injury not the Ltd Co, and my understanding is that there is no tax on a personal injury compensation payment but there maybe on any interest paid.
  • ncacatncacat United KingdomRegistered Posts: 39
    Nice one. Compensation is not taxable on its own.

    Interest is indeed taxable, the secondary component of the compensation from the time accident happened up until the case is settled.

    My understanding @douglasstroud is that, we could just encash the cheque and move it in and out of company books. Instead of asking the cheque issuing company to reissue it?
  • lala99lala99 Registered Posts: 15
    Hi douglasstroud and ncacat.
    Thanks for your help. That's all sorted. I really appreciate your input.
    As an aside, if it was for vehicle repairs am I right in thinking it just needs to be paid in and coded to other income (insurance compensation) which would in effect offset against the money the company has paid out to have to repairs done?
    ashakantaxharma
  • CSan89CSan89 MAAT Posts: 207
    lala99 said:


    As an aside, if it was for vehicle repairs am I right in thinking it just needs to be paid in and coded to other income (insurance compensation) which would in effect offset against the money the company has paid out to have to repairs done?

    Yes that would be correct.
    AAT Level 2&3 - 2016
    AAT Level 4 - 2017
    Personal Tax, Business Tax and External Auditing

    ACA/CTA -
    Certificate Level - Jan 2019
    ashakantaxharma
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