BIM40245 - Specific receipts: unclaimed balances: overpayments - example

A shipper and forwarding agent’s trade comprises arranging sea freight and dealing with Customs formalities on behalf of its customers. The company enters into contracts with its customers on the British International Freight Association’s standard conditions. Those conditions include a provision that the company procures its services as an agent and/or as a principal. The conditions also provide that the company is entitled to retain and be paid all brokerages, commissions, allowances and other remuneration customarily retained by or paid to freight forwarders.

In providing a quote to a customer, the company estimates how much it will have to pay in Customs duties, VAT etc and errs on the side of caution.

The company deals with a very large number of relatively small customers and a smaller number of large customers. The company provides the larger customers with regular accounts but only gives an account to a smaller customer on request. Typically the smaller customers overpay by modest amounts. Those who make a claim to the company are offered a credit note or repayment. From time to time, the accumulated unclaimed balances from those customers who have not claimed the amounts due to them are transferred to the profit and loss account of the company.

The relationship of agent and principal makes the company a fiduciary (see BIM40220). The relationship is one in common law and not governed by the rules of equity. The company is not a trustee for its customers. There is no obligation for the company to keep the Customs duties, VAT and so on in a trust account distinct from its own accounts.

The overpayments arise out of trading transactions, they are habitual and numerous. As the contract is written under the law of England and Wales, the overpayments are taxable when recognised in the company’s accounts or after six years, whichever comes first. For more details of the Statute of Limitations which applies in Scotland and Northern Ireland, see BIM40230.

For a detailed discussion of the case law which applies to overpayments, see BIM40240.

Health Warning

This page is part of the section of the Business Income Manual on unclaimed balances. You should read the whole section to understand this topic. See the contents page at BIM40200.