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Tax point on providing warranty services

When is multi-year cover taxable?

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I provide a warranty on white goods, which can be for 1, 2 or 3 years. The fee is paid upfront in a single payment. If the payment covers multiple years, do I apportion the income accordingly?

For example, my year end is 31 December 2021. Someone pays me £600 on 30 June for 3 year cover. Is the entire sum of £600 deemed as income in the year ended 31 December 2021, or is split accross the years  as : 2021 £100, 2022 £200, 2023 £200, 2024 £100?

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By Wanderer
13th May 2021 16:44

Quote:

I provide a warranty on white goods, which can be for 1, 2 or 3 years. The fee is paid upfront in a single payment. If the payment covers multiple years, do I apportion the income accordingly?

For example, my year end is 31 December 2021. Someone pays me £600 on 30 June for 3 year cover. Is the entire sum of £600 deemed as income in the year ended 31 December 2021, or is split accross the years  as : 2021 £100, 2022 £200, 2023 £200, 2024 £100?

Thanks

Why have you purposely selected to post using the anonymous option when your question doesn't appear to warrant this?
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Replying to Wanderer:
RLI
By lionofludesch
13th May 2021 18:48

Quote:
......... to warrant this?

I see what you did there.

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By Hugo Fair
13th May 2021 16:50

If you're an accountant, then you'll understand all about deferrals and accruals ... if you're not, then you need to appoint one.

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By paul.benny
13th May 2021 17:39

Most extended warranties are in fact insurance policies and given the regulatory complexity and obligations, they're provided by specialist insurers. Are you an insurer?

You mention tax point in the heading. The VAT guide (VAT700) sets out how to determine tax point for VAT.

Or, as the question suggests, are you really asking when the monies paid are subject to corporation tax? If that, it comes down to when you recognise the revenue. FRS102, s23 is your guide there. Unless you have bought out the manufacturer guarantee, you probably shouldn't be recognising any income from your extended warranty until end the manufacturer warranty period.

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