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Free money
It's surprising how often people give their money away - not to charity, but to other businesses or the Government. The Inland Revenue run occasional campaigns to persuade people to claim their allowances, and they reckon they have a great deal of "voluntary tax" which they are happy to give back, if only people would ask them.
 In a recent tax case, a business had taken deposits from a number of customers who then didn't proceed with the contract, but never asked for the money back. The business didn't go out of its way to remind them, so the money just stayed on the balance sheet as a creditor. Eventually, the directors decided that the customers were unlikely to ask for it, so they transferred it to profit and loss. The dispute wasn't over whether this was ethical or legal - just over whether it was taxable.
Surprisingly, the Court said that it wasn't. As the money didn't belong to the company, it couldn't be taxable income, even if they proposed to keep it. The book entry to move it to P&L didn't change that.
If you have unusual accounting items like this, it's always worth talking over the VAT and tax effects - it's easy to assume that it must be taxable, when sometimes the answer is more surprising. And, of course, it's good practice to keep track of the money you pay out, in case you are entitled to a refund - don't be so generous!
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The tax case is Anise Ltd v Hammond SpC 364, which concerned deposits received for advertising space in brochures published by the company. The Commissioners upheld the old tax case of Morley v Tattersall, in which unclaimed deposits were held not to be income in the 1930s, and did not think that anything had changed since.
The situation has to be distinguished from a "forfeited deposit" - if a deposit is paid over under conditions which make it the recipient's money in certain circumstances, then it will be the recipient's income if those circumstances arise. For example, a deposit to hold a hotel room, which will be forfeited if the guest does not turn up, is the hotel's income as soon as it is forfeited. It is only a deposit which is genuinely refundable without time limit, but is simply not claimed, that is subject to this principle.
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