Business interruption insurance payout — is it taxable income for my company?

In most cases, yes. A business interruption payment that replaces lost profits or reimburses revenue costs, such as temporary premises, rent or additional staff costs, is generally treated as a trading receipt for corporation tax. The principle is that it stands in place of the income or cost saving the company would otherwise have had, so it is taxed in much the same way as the profits it replaces.

The breakdown in the policy and settlement matters, because different parts can be treated differently. An amount that compensates for loss of profits or for ongoing revenue expenses is normally a revenue receipt. An amount that replaces a capital asset, or compensates for the loss of a capital item, may instead need capital treatment, for example through capital allowances, a disposal or a chargeable gain calculation, depending on what was lost and how the money is used. If the insurer's schedule does not split the payment clearly, ask for that split in writing before you finalise the accounts, and keep the loss adjuster's workings.

Timing also matters. For a company preparing accruals accounts, the receipt is not automatically taxed in the year the cash arrives. It is generally recognised when the claim is established and the amount can be measured reliably, which may mean recognising a receivable in the period of the disruption even if payment arrives after the year end. Your corporation tax return then starts from the accounting profit, with tax adjustments, so getting the accounting period right will usually get the tax period right as well. If the claim was still disputed or uncertain at the year end, that is a judgement your accountant should document rather than guess.

For VAT, an insurance receipt is generally outside the scope of VAT: you are not making a supply to the insurer by receiving it, so you do not add VAT to the payout. That does not change the VAT treatment of the underlying costs. VAT on repairs, temporary premises and other services can still be recoverable under the normal rules if the company incurred the cost and holds a valid VAT invoice. Keep the policy, claim form, settlement letter, loss adjuster's report, invoices for additional costs, repair invoices and bank evidence together, because HMRC will expect the tax treatment to follow the documents, not just the total paid.