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Readers' Forum
Replies to Queries — 3
Insured loss
Readers' Forum
Replies to Queries — 3
Insured loss
Our client company had insurance against claims for damages (and legal costs) resulting from its business as bailiffs. The insurance required the company to advise of any potential claims prior to taking legal advice. The company repossessed certain items where its right to do so was disputed and neglected to advise the insurance company of this. When the matter was finally settled it paid damages of £25,000 and legal fees of £19,000, not recovered under the insurance.
The Revenue is denying tax relief in respect of these costs under section 74(1)(l), Taxes Act 1988 because the company was originally insured against these and thus any loss that could have been recovered under the insurance would not be eligible for tax relief regardless of whether or not it is ultimately recovered. We believe the legislation was intended to deny tax relief on amounts equal to the sums subsequently recovered and suggested that the definition of recoverable should be taken to mean 'ultimately recovered'. The Revenue seems unmoved by such arguments.
The costs of an appeal to the Commissioners' are likely to be prohibitive bearing in mind the tax at stake and the professional costs already incurred to date. Is the Revenue right in its interpretation of this legislation?
(Query T16,462)
