To most people, provisions mean food or the terms of a contract.
To accountants, it means something different.
When accountants are in their formative years they are taught to be cautious. A good accountant word for this is ‘prudent’. Most other people would call this ‘miserable’.
It’s a glass half-empty approach to accounts preparation.
It means they assume the worst may happen and include estimated costs of that possible catastrophe.
So, for example, if it’s a financial advisor’s accounts, a figure is inserted for the likelihood of potential clawbacks (a repayment of commission earned).
If it’s a builder you include a figure for possible snagging (going back to fix work that isn’t perfect).
The good news is that provisions reduce tax bills.
So when your accountant asks if you want to include a provision, nod enthusiastically if you want to save tax.
Do you know how to nod enthusiastically?
Do you want to save tax? Call us or send us a message to find out how provisions can make you wealthier by reducing your tax bills.