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HMRC internal manual

Business Income Manual

Receipts: general: excluded revenue: liability

It should not be assumed that a sum received is a trade receipt solely because nothing would have been received had the trade not been carried on.

Further guidance about this may be found, in the context of compensation and damages receipts, at BIM40100 onwards and, for voluntary receipts, at BIM41800 onwards. Broadly speaking - and a one sentence summary is no substitute for the more detailed guidance referred to - the distinction is between money received in the capacity of trader; and that received in a personal capacity. Examples of sums received in a personal capacity are sums received because the recipient has suffered personal injury (compensation), or because the receipt is nothing other than a personal ’thank you’ (voluntary payment). Such ‘non-trade’ receipts are not common, and are restricted to smaller trading concerns. Personal injury compensation is only excluded if the injury was suffered by and is personal to the proprietor himself. In particular, it does not apply to companies.

As to whether investment income such as bank interest is capable of being regarded as trading income, see BIM40800 onwards. The priority rules at BIM40805 should be borne in mind. These rules determine under which category income should be taxed (eg as trading income or savings income) where it would potentially fall within two different categories.

Trading losses relating to earlier periods may in some circumstances be set against interest or dividends of the current period. In addition to BIM40800 onwards, see BIM85000 onwards (Income Tax losses) and CTM04000 onwards (Corporation Tax losses).