What is a provision in accounting?
Answered 17 March 2026
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What is a Provision in Accounting?
HMRC Guidance / Practice
Definition: 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.
Under FRS 102 Section 21, provisions are defined as "liabilities of uncertain timing or amount", and are based on the concept of a liability: "a present obligation arising from past events, the settlement of which is expected to result in an outflow of resources embodying economic benefits". Mere anticipation of future expenditure, however probable and no matter how detailed the estimate, is not enough in the absence of an obligation at the reporting date.
This definition is consistent across accounting frameworks:
- FRS 102 Section 21 – Provisions and Contingencies
- IAS 37 – Provisions, Contingent Liabilities and Contingent Assets
- Old UK GAAP FRS 12 – Provisions, Contingent Liabilities and Contingent Assets
As confirmed in case law, under FRS 12: "A provision is a liability that is of uncertain timing or amount, to be settled by the transfer of economic benefits." Where a sum has already been settled, it is no longer of uncertain timing or amount and cannot fall within this definition.
Important distinction: The word "provision" is also commonly used to refer to a reduction in the carrying amount of an asset (e.g. a debt impairment provision or an inventory/stock provision). However, the rules governing such provisions — both in accountancy practice and tax law — are different and are covered separately in HMRC guidance.
Tax deductibility: A provision will only be allowable for tax purposes if:
- It is in respect of allowable revenue expenditure (not capital expenditure);
- 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; and
- It is estimated with sufficient accuracy.
Citation sources
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 differen
The guidance in this chapter refers to FRS 102 Section 21 Provisions and Contingencies. Related standards under other frameworks are: FRS 105 Section 16 Provisions and Contingencies IAS: IAS 37 Provisions, Contingent Liabilities and Contingent Assets. Old UK GAAP: FRS 12 Provisions, Contingent Liabilities and Contingent Assets. If you have concerns regarding the accounting treatment of a provision, seek advice from an HMRC Advisory Accountant. The basis of FRS 102 Section 21 is that provisions m
le and therefore the definition does not come into application. The purpose of FRS 12 is “to ensure that appropriate recognition criteria and measurement bases are applied to provisions, contingent liabilities and contingent assets”. Of these, the only term that would apply to sums gifted to a commercial incentives trust is that of provisions. A provision is "a liability that is of uncertain timing or amount, to be settled by the transfer of economic benefits." Clearly where a sum has already be