The decision means that firms will now be able to reduce taxable profit by taking into account some anticipated losses.
Firms have, in the past, been able to reduce their tax liability by making provisions against future losses, but since 1990 the Revenue has insisted that the benefits from this should be postponed when calculating tax bills.
The effect of the Revenue U-turn will be that businesses will receive their tax deductions more quickly, saving on lost interest. Contractors with long-term contracts are set to benefit most from the change.
The cases that led to the about-turn by the Revenue involved the Edinburgh department store Jenners, and Herbert Smith, a law firm.
Jenners wanted to cut its annual tax bill in anticipation of repairs planned for the following tax year. Herbert Smith had reduced its taxable income by anticipating a loss from rent on surplus properties.
Construction in particular, which has high rates of work-in-progress and large amounts of long-term contracts, should benefit.
Iain Stewart, tax expert at KPMG, welcomed the move and said the industry would feel the benefit in two main ways.
"Firstly, it will help inject some liquidity into the industry - which is always looking for cash to fund projects, especially for privately funded work," said Stewart.
"And secondly, it will mean that construction companies are taxed on economic realities –rather that on some fictional profit created for the Revenue."
