Disallowances

Disallowances are formal denials of expenses, deductions, or claims by an authority responsible for enforcing rules, such as tax authorities, auditors, or grant administrators. A disallowance reduces the amount that can be claimed or reimbursed and may be accompanied by penalties or interest if the underlying expense is contested or deemed non-compliant.

Contexts in which disallowances occur include taxation and accounting, as well as government grants and procurement. In taxation, a disallowance happens when a claimed deduction or expense does not meet statutory or policy requirements. Common examples include personal expenditures claimed as business expenses, fines or penalties, expenses not supported by adequate documentation, entertainment or hospitality costs that exceed permitted limits, and the misclassification of capital expenditures as revenue expenses. In grant management, funds may be disallowed if they are used for ineligible activities, lack proper documentation, or exceed allowable costs, potentially requiring repayment.

The practical effect of a disallowance is to reduce the claimant’s recoverable amount and to trigger review or correction processes. Typically the claimant is notified and may be asked to provide additional evidence, adjust the claim, or appeal the decision. If the issue remains unresolved, it can lead to tax reassessments, repayment obligations, interest charges, or penalties. Disallowances are distinct from allowances, which are approved deductions or reimbursements permitted under applicable rules.