A provision is a liability where the timing or amount is uncertain – for example the expected cost of repairing a leased building at the end of the lease (dilapidations), warranty claims, or a legal claim the company expects to lose. Provisions sit on the balance sheet under Provisions for liabilities, alongside any deferred tax.
What this note shows
A reconciliation of the provision from the start to the end of the year:
| Printed row | Meaning |
|---|---|
| At [day before the period start] | Opening balance |
| Additional provisions made in the period | New provisions recognised this year |
| Increase/(decrease) in existing provisions | Changes in the estimate of provisions already held |
| Provisions used | Amounts spent against the provision |
| Unused provisions reversed | Amounts no longer needed and released |
| Other movements | Anything else |
| At [period end] | Closing balance |
It is also good practice to describe what each provision is for and when it is expected to be settled. The note is available in FRS 102 Section 1A accounts only.
Deferred tax is a provision too, but it has its own deferred taxation note. If deferred tax is the only item in Provisions for liabilities – as it is for most small companies, including the demo company – leave this note switched off.
Where the figures come from
- The opening figure is read from the Provisions account in the trial balance and cannot be typed over.
- The five movement rows are typed in.
- The closing figure is calculated as the opening figure plus each movement exactly as entered, so enter reductions (provisions used, amounts reversed) with the sign that makes the closing figure correct.
The editor shows a red warning, "The provision at the end [date] should be 0.", whenever the closing figure is not zero. Because the opening figure is taken straight from the trial balance account, the printed opening and closing figures may not match what you expect. Before filing, compare the printed note line by line with the provisions on the balance sheet and with your own working, and correct the trial balance or the movements until they agree.
Completing the note in Tax Optimiser
Open the period, choose View Accounts, then Notes in the left Actions menu. Under Provisions for liabilities, select Provision for liabilites (the section name in the list).
- Set Show this note in the accounts to Yes only if the company has provisions other than deferred tax.
- Check the opening figure (Provisions at the period start date).
- Enter the movements: Additional provisions made during period, Increase/decrease in existing provisions, Provisions used, Amounts reversed unused, Other adjustments to provisions.
- Check the closing figure, then use Additional note for Provision for liabilites to describe the provision.
- Click Save changes to save the note and rebuild the accounts preview. Then review the printed note against the balance sheet.
The demo company has no provisions other than deferred tax, so the note is switched off and every figure is zero.
Wording templates
On the Additional note for Provision for liabilites section:
- Nature and timing of the provision – states what the provision relates to and when it is expected to be settled. You are asked for {{Nature}} and {{Timing}}.
How it appears in the accounts
When switched on, the note prints the opening balance ("At" the day before the period starts), only the movement rows that have a figure, and the closing balance ("At" the period end) with a double underline. There is a single £ column – no comparative year – and any additional note text prints below. The demo company does not use this note, so there is no printed example.
Frequently asked questions
Do I need a provisions note if I only have deferred tax?
No. Deferred tax has its own note. Leave the provisions for liabilities note switched off unless the company has other provisions, such as dilapidations or warranties.
What is the difference between a provision and an accrual?
An accrual is a cost already incurred where the amount is known with reasonable certainty, such as an unpaid bill. A provision is a liability where the timing or amount is uncertain and has to be estimated.
Why does the editor say the closing provision should be 0?
The editor shows that warning whenever the closing figure is not zero. Treat it as a prompt to check: compare the printed opening and closing figures with the balance sheet and your own working before filing.
Where does the opening figure come from?
It is read from the "Provisions" account in the trial balance. If it is not what you expect, check that account in the trial balance.