Counting the costs on the London riots

THE EFFECTS of the recent looting and rioting on small businesses and insurance firms is minimal in a wider economic sense. However, this will be of scant consolation to those business owners who had to watch their shops being destroyed.

HM Revenue & Customs acted quickly to help these businesses. It highlighted the Time to Pay scheme, allowing those with short-term financial difficulties to agree payment schedules, and said it would discuss solutions where businesses could not fulfil obligations.

One of the top priorities is insurance. The estimated insured losses from the riots are more than £200m, according to the Association of British Insurers. Insured businesses will have to put in claims as soon as possible, though insurers have set up 24-hour helplines. But many policies explicitly exclude this kind of damage.

There are also tax implications for insurance payouts. Katherine Arthur, tax principle at MacIntyre Hudson, says the payouts will be taxed differently. Payments for a “hole” in the commercial profits are taxable trading receipts. A sum received under a policy insuring a fixed asset is a capital receipt. And expenditure incurred by repair, renewal or replacement should be reduced by the amount recoverable.

For the unfortunates without insurance, there is some recourse. Businesses can receive compensation from their police authority under the Riot Damages Act. Usually, claims must be received within 14 days but home secretary Theresa May has extended this period to 42 days.

The businesses’ tax situation will likely be affected. Patrick Stevens, partner at Ernst & Young, says they can carry back one year and claim tax repayment if they make a loss. If not, it can be carried forwards and set against future profits. Businesses must draw up a set of accounts and hand it to HMRC as soon as possible to secure repayment.

However, the truth is that any advice means little compared with the commercial costs. Manos Schizas, senior policy adviser at ACCA, who is leading the campaign to involve advisers, says the majority coming forwards are insolvency practitioners.

Derek Allen, head of tax at ICAS, says: “All the businesses lose out on the income they might otherwise have obtained. And those areas will not recover until people have confidence that the area is safe.”

This should not discourage people involved in the clean-up effort. But the long-term implications are likely to involve insolvency for the worst-affected businesses, through no fault of their own. ?