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HMRC internal manual

Business Income Manual

Specific receipts: compensation and damages: reimbursement of trading expenses

S5 Income Tax (Trading and Other Income) Act 2005, S35 Corporation Tax Act 2009

Compensation that includes reimbursed expenses

Where an amount of compensation, not itself a trading receipt under BIM40110 - BIM40125, includes reimbursement of trading expenses that are admissible as a deduction, you should treat such expenses as diminished to the extent of the reimbursement (see the words of Lord Blackburn in CIR v The Granite City Steamship Co Ltd [1927] 13 TC 1 at page 18). If such diminution is effected in the trader’s accounts in accordance with GAAP (see BIM31110) by crediting the reimbursement when received, you should normally not object to following that course for tax purposes.