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HMRC internal manual

Business Income Manual

Receipts: general: particular types of transaction

S96 Income Tax (Trading and Other Income) Act 2005, S93 Corporation Tax Act 2009

Items of a capital nature must not be brought into account as receipts in calculating the profits of a trade. This rule is disapplied where there is a specific provision which treats a capital item as a trading receipt. For guidance on the capital/revenue divide generally, see BIM35000 onwards.

Guidance in the context of particular types of transaction may be found at BIM40100 onwards (compensation and damages), BIM40300 onwards (exclusivity agreements), BIM40450 onwards (grants) and BIM41050 onwards (reverse premiums). The case law highlights certain characteristics that may apply generally; for instance:

  • It is important not to be guided too much by the label attached to the receipt. What is important is to establish what in fact the receipt was actually for (see Walton J in Burman v Thorn Domestic Appliances (Electrical) Ltd [1981] 55TC493 at 507I).
  • In determining the true character, all the surrounding circumstances should be considered. In particular, it may also be necessary to have regard to extrinsic evidence (see Megarry J in CIR v Church Commissioners for England [1976] 50TC516 at 538).
  • There is no single touchstone that determines whether a receipt is capital or revenue. But to have the character of capital, receipts should derive from the loss or disposal of tangible capital assets of the trade, or intangible assets of a capital nature (for detailed guidance on intangible assets see BIM35500 onwards). Receipts arising from the loss or disposal of trade agreements will be revenue except in exceptional cases where their loss cripples the whole trade (see Van den Berghs Ltd v Clark [1935] 19TC390 and, on the payments side, Vodafone Cellular Ltd & Others v Shaw [1997] 69TC376, discussed in BIM42140).
  • If appropriate, a receipt may be apportioned, part to capital and part to revenue.