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HMRC internal manual

Business Income Manual

HM Revenue & Customs
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Specific receipts: compensation and damages: loss of office: exceptions

Exceptions to the rule

Before accepting that BIM40135 applies to compensation for loss of office there are two factors that you may need to consider:

  • that the distinction between employment and trading income is not always clear-cut. In circumstances that are close to the margin and where the income from the contract giving rise to the compensation has been included in the trading income computation, you should critically examine a claim that compensation relating to that particular contract escapes taxation by virtue of the employment rules
  • whether the professional person or firm is acting in a dual capacity for the person paying the compensation. For example, for an accountant carrying out the statutory duties of auditor and also providing general accountancy services, the instruction at BIM40135 does not apply to that part of the compensation attributable to the loss of the accountancy work (see Ellis v Lucas [1966] 43 TC 276)