Lee Sharpe looks at the taxation of deposits for property businesses.
The taxation of deposits can be complex and can, in some cases, have quite unfair outcomes. We shall look at the basics in this article.
When is a deposit taxable?
The basic principle is that a simple deposit secures nothing and is not, therefore, taxable as it may ultimately have to be refunded, depending on future events (for example, the performance of the contract). HMRC’s Business Income manual states (at BIM31110):
“When a deposit is received the business will not have carried out the actions necessary to earn the money. This applies whether or not the deposit will be forfeited if the transaction is not carried through. The deposit should be recognised either when the goods or services are provided
