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A provision made in accounts is the recognition of a liability, the timing or amount of which is uncertain. Provisions are distinguished from trade payables and accruals and are reported separately in accounts.

The word ‘provision� is also often used to refer to the recognition of a reduction in the carrying amount of an asset, for example, a debt impairment provision or an inventory (stock) provision. The rules governing such ‘provisions�, both in accountancy practice and tax law, are different, and covered elsewhere in this guidance (stock/inventory valuation BIM33100 onwards, debt impairment BIM42700 onwards).

Otherwise a provision made in accounts will only be allowable for tax purposes if:

• It is in respect of allowable revenue expenditure and not for example, in respect of capital expenditure see RTZ Oil & Gas Ltd v Elliss [1987] 61TC132.
• It is in accordance with Generally Accepted Accounting Practice (GAAP).
• It does not conflict with any statutory rule governing the time at which expenditure is allowed.
• It is estimated with sufficient accuracy, see BIM46555.