Does an insurance pay-out count as income for self assessment tax purposes?

FabulousFarmer

I am a self employed taxi driver and complete a Self-Assessment Tax Return. My car was involved in an accident. The insurance paid out and I paid for the repairs myself. The pay out was more than the cost of the repairs. Does anyone know if the insurance pay-out counts as income for tax purposes?

Jeremy535897

Yes it does, because you will have claimed the premia as an expense, and you will claim the cost of the repairs as an expense.

FabulousFarmer

Jeremy535897 said:

Yes it does, because you will have claimed the premia as an expense, and you will claim the cost of the repairs as an expense.

Thank you for the reply (apologies for the delay).
Having looked at the HMRC website, I was a bit confused by BIM40755 -  A sum received under a policy insuring a fixed asset against damage or loss is a capital receipt. I wasn't sure if a capital receipt is to be included in calculating profit.

Sandtree

FabulousFarmer said:

I am a self employed taxi driver and complete a Self-Assessment Tax Return. My car was involved in an accident. The insurance paid out and I paid for the repairs myself. The pay out was more than the cost of the repairs. Does anyone know if the insurance pay-out counts as income for tax purposes?

No, insurance payments are compensation and so not subject to income tax

Jeremy535897

Insurance payment taxation is complex, and it depends on what the receipt is for. There is no blanket exemption. I agree that BIM 40755 treats any excess over the repair cost as a capital receipt, but in circumstances where you have presumably claimed capital allowances on the whole of the cost of the vehicle, any excess over the cost of the repairs will have to be treated as sale proceeds for capital allowances purposes, or trading income if you use the cash basis.

tasticz

depends, if you intend to put the repairs as expenses on SA to reduce the tax bill then the insurance pay out should be added.

if not, then no need as it is compensation for your troubles.

If you're thinking of declaring repairs as expenses but not the insurance pay out then I'd tread carefully here... probably consult with your accountant

Jeremy535897

If the vehicle is a business asset on which capital allowances have been claimed, repairs to it are an expense of the business, and the insurance receipt is trading income up to the amount spent as expenses, and the balance is a disposal for capital allowances purposes, as I said earlier.