Dealing with the aftermath of a flood is a challenging time for affected businesses. Although tax may not seem the most pressing issue for businesses trying to stay afloat, complications can arise. Business owners will still need to make tax payments while dealing with other issues, including cashflow pressure, the loss of business records and insurance claims.
Keeping cash flowing
Flooded businesses will still need to pay many of their expenses, despite the fact their income is being seriously squeezed, or has stopped altogether. HMRC’s payment deadlines will still loom large, even for a business crippled by flooding. The tax authority can offer payment plans to those in financial difficulty. However, early dialogue with HMRC is essential in advance of payment deadlines.
Loss of business records
Floods can destroy paper and damage computers. Books, receipts and other records needed for filing tax returns could be lost, possibly irretrievably. Even a temporary loss could cause problems in meeting HMRC’s deadlines for filing corporation tax, VAT or self assessment returns.
Those affected should not wait until the deadline has passed before notifying HMRC and opening up discussions. Following past floods, HMRC has shown a degree of leniency around filing deadlines, although it must receive advance notification of the delay to filing and a revised submission date.
Ideally, most businesses will have flood cover as part of their property insurance, so will be able to make a claim for damages. A full insurance recovery will result in a tax neutral position. However, full recovery is unlikely if there is a policy excess.
After 2018’s floods, those small and medium-sized enterprises (SMEs) which suffered losses that could not be recovered from insurance were eligible for a Business Recovery Grant.
The availability of tax relief for expenditure on remedial works to buildings will be an important consideration for business owners. This is particularly the case where there is no valid insurance policy in place.
Expenses that are classed under ‘repair and refurbish’ will qualify for a deduction against taxable profits as revenue expenses. However, any ‘improvements’ or enhancements will be regarded as investments and treated as capital expenses, so will not qualify for a deduction against taxable profits.
Learning the lessons
For businesses affected by flooding, reconstructing records and bringing paperwork up to date as quickly as possible will be as important as property recovery. While waiting for income streams to start reflowing, dialogue with HMRC and other creditors will be vital.
Meanwhile, the regular reviewing of insurance cover is a lesson that all business owners can learn from these events.
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