No matter what type of business you run, you will have assets. Farm businesses may have stock, land, crops, machinery, a farmhouse. It is prudent to insure these assets to be confident that you that you are fully covered in the event of an unfortunate incident. Given the amount of assets anyone may insure and their values, you would imagine that there would be a simple, stress-free way to account for such events for tax purposes.
Unfortunately, this is not the case, particularly for farming businesses. There are some cases in which an insurance payout can directly affect your farm’s profit or loss. On other occasions, you may find yourself subject to a capital gains tax liability.
Issues can arise when you use an insurance payout to repair capital assets in your business. How much did you use to repair the asset and how much was retained? if the amount retained is significant it is subject to capital gains tax.
This is a complicated area which can have a direct effect on the tax you pay. If you are making a significant insurance claim it is always worth ringing us to check the tax position.
Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.