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HMRC internal manual

Capital Gains Manual

Compensation: Docks and Harbours Act 1966: introduction

These instructions tell you about a particular type of statutory compensation, see CG12985+, which was introduced in the late 1960’s. While it is very unlikely that you will have to deal with a case involving this actual type of compensation, the general principles still apply. Current examples of this type of compensation include the foreign compensation cases which CG13055+ tell you about.

Compensation/levy payments

The Docks and Harbours Act 1966 established a licensing system designed to reduce the number of port employers. Compensation was payable under the Act to those employers who were refused licences. That was then recovered, by way of a levy, from those employers who were awarded licences.

Compensation which was paid to the employers who were refused licences was treated as a capital sum, under what is now TCGA92/S22 (1), which was derived from the goodwill of the business, so that a business which failed to get a licence was chargeable to Capital Gains Tax on any gain which accrued.

The levy payments were treated as additional allowable expenditure, see CG15150+, which had been incurred by the licensed employer. This reinforces the point that it is necessary to consider both the payer’s and the payee’s tax position in looking at any case involving compensation, of whatever type. It is always worth while making sure that you liaise with the District dealing with the other party to the transaction before agreeing the Capital Gains Tax treatment of any compensation payment or receipt.