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HMRC internal manual

Capital Allowances Manual

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HM Revenue & Customs
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Know-how: Receipts: Normally revenue

A person may receive lump sum payments or royalties in return for imparting or disclosing know- how accumulated in the course of a trade. You should normally treat them as trading receipts whether the payments are lump sum or recurring. Tax cases which support this view are British Dyestuffs Corporation (Blackley) Ltd v CIR 12TC586, Jeffrey v Rolls Royce Ltd 40TC443, Musker v English Electric Co. Ltd 41TC556 and Coalite & Chemical Products Ltd v Treeby 48TC171.

The types of know-how likely to be accumulated in the course of a trade are things like manufacturing techniques, technical knowledge and secret processes.

If you have to decide whether know-how receipts are capital or revenue you should find the case of Jeffrey v Rolls Royce Ltd [1962] 40TC443 useful. Rolls Royce made agreements with several overseas companies for the sale of know-how relating to aero-engine manufacture. Lump sums received under those agreements were held to be revenue. The House of Lords thought that the repetitive exploitation of know-how was simply an extension of the existing trade carried on by Rolls Royce and so gave rise to revenue receipts.

A company that acquires know-how may pay for it by issuing shares in itself. A payment for know- how which is in shares may still be treated as a trading receipt, (Thomsons (Carron)Ltd v CIR 51TC506).