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HMRC internal manual

Business Income Manual

Receipts: general: whether trading income

Most receipts in the hands of a person carrying on a trade, etc, arise from the disposal of trading stock, provision of services, etc. Such receipts are obviously trading receipts and any contentious issues are confined to the questions of timing considered at BIM31090 onwards. But from time to time sums may be received other than as consideration for the provision of goods and services where it may not be clear whether they are revenue trade receipts. In such cases two questions must be considered:

  • does the sum at issue arise from the trade at all
  • is it a capital or revenue item.

For further guidance on these points see:

  • on whether a receipt is from the trade - BIM40055.
  • on the capital/revenue issue - BIM40060.
  • if a receipt is not from the trade - BIM40065.

Money or money’s worth

You should remember that to be a taxable receipt of a trade, unless specifically brought into charge by statute, income must be in the form of money or money’s worth.

The House of Lords decision in Gold Coast Selection Trust Ltd V Humphrey [1948] 30TC209 established the principle of the value of trading income received in non-monetary form is taxable in full as trading income. This principle was enacted into S28A ITTOIA 2005 for transactions occurring on or after 16 March 2016.     

This follows from the approach to Income Tax adopted by the House of Lords in Tennant v Smith [1892] 3TC158. A bank required its agent to live at the bank house, which included residential accommodation. The House of Lords decided that the value of the house was not part of the agent’s income. The House of Lords took this view because the value of the house was not money or money’s worth in the agent’s hands and could not be turned into money.

There is no equivalent for traders of the benefits in kind legislation for employees. This means that when a trader receives, for example, as a reward for being a good customer of a particular supplier a non-transferable holiday there is nothing to include in the taxable trade profits. The holiday is not money and, being non-transferable, is not convertible into money.