Run-off insurance

[dally]

If when a profesional sole-trader comes to retire she pays a one-off PI premium to cover the usual run-off period applicable to that profession, is it fully tax deductible provided it is accrued in the final accounts of the business? Although the premium relates wholly and exclusively to the period when the business operated by its nature it is to protect against claims arising after cessation (albeit in relation to work carried out beforehand).

Assuming it is deductible in full - is that specified anywahere in legislation or HMRC guidance?

Many thanks.

[wamstax]

I see no problem in deducting the full premiums in the year they are incurred as clearly the expense does not bring into being any asset or advantage of an enduring nature and would therefore be viewed as normal revenue expenditure

Clearly it is no different than the normal PPI premiums paid to cover actions against a trader in the normal course of trade. I realise that some tax inspector might argue that the expenditure was not incurred for the purposes of the trade (in other words to continue trading and earning profits) as the trade is ceasing however I would put him/her to the task of pinpointing the specific accounting and tax statute that debars relief. At date of cessation there would be no asset as the negligence claims if any would more than likely be "imaginary" i.e. not established and if they were then clearly the PPI policy receipt would do no more than negate any provision for any claim

[Incredulum]

I'd agree with that, there is no risk of its being capital - despite the fact that it (presumably) has a validity beyond even death.

I do not see a problem provided it is properly accrued in the accounts PRIOR to the cessation of trade - i.e. the insurance must be taken out (or at least, strictly, a binding contract entered into) prior to cessation.

[dally]

Thank you for your replies.