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HMRC internal manual

Business Income Manual

Miscellaneous income: particular sources: guarantees

S687-S689 Income Tax (Trading and Other Income) Act 2005, S979-S981 Corporation Tax Act 2009

If a person agrees to act as guarantor in return for a reward, then they are chargeable under the miscellaneous income sweep-up provisions, if they are not otherwise chargeable.

In Sherwin v Barnes [1931] 16TC278, a guarantee was given in respect of an overdraft in return for the payment of a bonus of £1,000. The guarantor was assessed to Income Tax in respect of his share of that £1,000. Rowlatt J said at pages 280-281:

`The question is simply this: first of all, is this receipt in the nature of income? If it is in the nature of income, then does it fall within the year? That is the way Lord Atkin put it, and I think everybody agreed that that was right. Earning a commission by pledging your credit was held, and considered rightly held, in Ryall v Hoare, to be in the nature of income. There it is, and I cannot get away from that.’