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HMRC internal manual

Lloyd's Manual

Names: other Lloyd’s-related income: compensation

Compensation arising from any legal action connected with or arising from membership of Lloyd’s is taxable trading income year of the tax year corresponding to the calendar year of receipt, regardless of the underwriting account that gave rise to the action.

Compensation covers amounts awarded as damages as a result of court action, recoveries of legal costs arising from litigation in connection with membership of Lloyd’s and any sums paid in out of court settlements. The 1996 House of Lords’ decision in the (non tax) case of Deeny and others v Gooda Walker Ltd (1996 STC 299) established that such compensation was a receipt arising from the Name’s business as an underwriting member of Lloyd’s, and was revenue rather than capital in character.