Business Loss or Natural Disaster: Compensation, Accounting and Tax

Quick answer. After a loss, declare quickly (generally 5 business days, 30 days after publication of the decree for a natural disaster), then quantify the damage with the loss adjuster. On the accounting side, a major change since 2025: the insurance indemnity is now booked to account 7587 "Insurance indemnities" (the transfer-of-charges technique, accounts 791/797, was abolished by ANC regulation 2022-06). The indemnity becomes operating income. The gain arising from an indemnity on a depreciable asset can be spread (article 39 quaterdecies of the Tax Code), and the VAT deducted on destroyed assets need not be repaid if the destruction is justified (article 207 of Annex II to the Tax Code).

Fires, water damage, floods, storms, droughts: losses hitting businesses are multiplying, and climate claims now weigh on premiums. On 1 January 2025, the "natural disaster" (Cat-Nat) surcharge built into property-damage policies rose from 12% to 20% — a rise decided by decree of 28 December 2023 to ensure the scheme's sustainability. For the owner, two reflexes: check your cover before the loss, and know how to treat the indemnity after.

On the accounting side, 2025 also changed things. ANC regulation 2022-06 abolished the transfer-of-charges technique: accounts 791, 796 and 797 disappear from the general chart of accounts, and insurance indemnities are booked to account 7587. The practical consequence: these indemnities move into operating income, which changes value added and, in turn, the basis for employee profit-sharing. Many online articles still use the old scheme: always check.

The Cat-Nat scheme, created by the law of 13 July 1982 and codified in articles L125-1 onward of the Insurance Code, works in stages: the cover is compulsorily attached to every property-damage policy, but compensation is only due if an interministerial decree (Interior and Economy) recognises the state of natural disaster for the municipality and is published in the Official Journal. Without a decree, no Cat-Nat compensation — the loss may then fall under another cover (storm, water damage).

For business-use property, the legal Cat-Nat deductible is 10% of the damage, with a minimum of €1,140 (€3,050 for drought or soil rehydration), unless a higher contractual deductible applies. Document everything: photos, purchase invoices, asset inventory, repair quotes.

For financial years opened from 1 January 2025, the scheme is unified around account 7587 "Insurance indemnities".

One exception to note: the indemnity received for the total destruction or theft of a fixed asset is booked to account 757 "Proceeds from disposals of assets", like a disposal — not to 7587, which covers the other indemnities (repairs, business interruption, inventory).

The principle: you record on one side the loss (an expense matching the destruction of the asset or inventory), on the other the indemnity (income in account 7587). Where the indemnity is established in principle at year-end but not yet paid, it is booked as accrued income, provided the claim on the insurer is certain. This timing of recognition is sensitive: it is best secured with your chartered accountant.

The gain on a destroyed asset#

When the insurance indemnity exceeds the net book value of the destroyed asset, it generates a capital gain. For a depreciable asset, article 39 quaterdecies, 1 ter of the Tax Code allows spreading: the short-term net gain realised following the receipt of insurance indemnities can be spread in equal instalments, from the following year, over a period equal to the average depreciation period already applied to the destroyed assets. This spreading avoids bearing the tax in one go, just when the cash is needed to rebuild.

Business interruption#

The business-interruption cover, distinct from property cover, compensates the lost gross margin and the fixed costs that keep running during the stoppage. This indemnity is taxable income, also booked to account 7587. It is precious because it is often this, rather than rebuilding the walls, that saves the cash. Preparing it is part of the business continuity plan.

VAT#

Two rules to remember:

• the insurance indemnity is not subject to VAT: it does not pay for a supply or a service, it repairs a loss. It is therefore outside the scope;
• the VAT deducted when buying the destroyed or stolen goods need not be repaid, provided the destruction or theft is justified (article 207 of Annex II to the Tax Code). This exemption applies to both fixed assets and inventory. The mechanism is the opposite of a lost receivable, where VAT can be recovered.

• Indemnity above replacement cost. If the indemnity, computed on a new-for-old basis, exceeds book value, the excess is taxable income (a spreadable gain if the asset is depreciable). Anticipate the tax charge.
• A loss straddling two financial years. Loss in year N, indemnity paid in N+1: the income must be attached to the year in which the claim becomes certain, not necessarily that of receipt.
• Underinsurance (proportional rule). If the insured amount is below the actual value, the insurer applies a proportional reduction: the indemnity is cut in the ratio of insured value to actual value. A contract audit avoids this nasty surprise.
• Destroyed inventory. The loss is recognised in the accounts, and input VAT is not repaid if the destruction is justified (report, statement, photos). Keep the evidence.

• Do not reuse the old accounting scheme. Accounts 791/797 have disappeared: the indemnity goes to 7587, as operating income. Check your software settings.
• Watch the impact on value added and profit-sharing. The shift to operating income can change the basis for employee profit-sharing.
• Check the Cat-Nat declaration. Without a published interministerial decree, Cat-Nat cover does not apply; the loss may fall under another cover.
• Consider spreading the gain. The article 39 quaterdecies option smooths the tax: it is decided on the income-tax return.

A retail client suffered flooding after a violent storm. The natural-disaster decree was published three weeks later; the owner, convinced he had missed the deadline, was about to give up. We reminded him that the 30-day deadline runs from the publication of the decree, not the loss: he was still in time. We then quantified the business interruption — a five-week closure — which amounted to more than rebuilding the premises, and structured the indemnity on the destroyed equipment to trigger the gain spreading. The result: preserved cash and a tax smoothed over several years.

What this case shows is that the value of a well-managed loss lies as much in deadlines and accounting as in negotiating with the insurer. A loss is an accounting and tax operation in its own right: mishandled, it adds a tax penalty to the damage suffered; well handled, it speeds recovery. Holding the cash through the crisis is part of it.

Hayot Expertise tip. At the time of the loss, keep everything: photos, invoices, inventory, quotes. Declare on time — mind the 30-day starting point after the decree for a natural disaster. Then have the tax treatment secured: income timing, gain spreading, no VAT repayment. That is where half the indemnity is won or lost.