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HMRC internal manual

Business Income Manual

Capital/revenue divide: intangible assets: exclusivity ties - reimbursed repairs, etc

A sales rebate is an allowable revenue deduction. It does not matter that such a rebate is paid in a single sum or in instalments.

Bolam v Regent Oil Co Ltd [1956] 37TC56 was concerned with agreements under which Regent Oil undertook to reimburse sums expended by the petrol retailer on decoration of the premises, resiting and maintenance of petrol pumps, etc. In return the retailer agreed to buy for resale only Regent petrol. Payments were based on the quantity of petrol supplied. Initially payments were for periods of a year or less and were made after the retailer had incurred approved expenditure. Later on payments were made in advance. In response to competition, agreements were (in some cases) offered for longer terms, up to five or six years.

Danckwerts J at page 68 explained that a sales rebate would give rise to an allowable deduction for the payer and that it makes no difference if the rebate takes the form of an up-front payment intended to cover several years:

‘It seems to me that there would have been no doubt if the payments had been made by reference to the amount of petrol sold to the retailers in each year; it would plainly have been expenditure, particularly if paid in the form of a rebate, which was expended by Regent Oil Co. in the course of its trade in the making of its profits. Does it make any difference because in the circumstances of the case there has to be some lump sum fixed which is paid to secure the same result, and even if payment is made in advance for several years?…It seems to me that this expenditure, adopted by reason of the policy of the competitors of the Regent Oil Co., was an expense which the trading company, the Regent Oil Co., had to incur from time to time in order to earn its profits, and in the course of earning those profits.. Therefore, it seems to me that the Commissioners reached the right conclusion in holding that it was expenditure of a nature which was deductible.’