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HMRC internal manual

Savings and Investment Manual

Annual payments: case law: ‘conditions and counter-stipulations’

The development of case law: ‘conditions and counter-stipulations’

In the light of the concept of ‘pure income profit’ (SAIM8030), much of the case law on annual payments has focused on the question of whether payments can be said to be made in return for something the recipient has provided, and has incurred expenditure on providing.

The case of CIR v National Book League (37TC455) concerned covenanted subscriptions to the National Book League, a charity. Subscribers were entitled to use the club and restaurant facilities at the League’s London headquarters. The Court of Appeal found that the payments were not annual payments because they were not paid ‘without conditions or counter-stipulations’ (a phrase which comes from the Epping Forest case).

But in the later case of Campbell v CIR (45TC427), Lord Donovan cautioned against taking the idea of ‘without conditions or counter-stipulations’ too far. An annual payment need not be - indeed, in most cases, will not be - made out of pure benevolence. Lord Donovan drew attention to the reference in what became ICTA88/S18 (3) to an obligation ‘by virtue of any contract’, and noted that a contract in its very nature will require the recipient to

“give or do something in return for the payment, which will not in such circumstances be ‘pure bounty’ in his hands.”

For example, annuity payments come to the recipient only because he or she has first invested a capital sum.

When looking at whether a payment is, or is not, an annual payment, it is important to look at the context in which it is made - this comes back to Lord Reid’s remarks in the Epping Forest case about the quality or nature of the payment (SAIM8030). This approach is illustrated by the case of British Commonwealth International Newsfilm Agency Ltd v Mahany (40TC550), which concerned covenanted payments by the BBC and the Rank Organisation Ltd into a joint venture company, for the purpose of making good its trading deficit. The company claimed repayment of tax on the basis that these were annual payments, but at every stage - from the Special Commissioners to the House of Lords - they were held to be trading receipts.

While the company relied extensively on dicta from the Epping Forest case, arguing that there was no consideration, conditions or counter-stipulations to the payments, the Lords ruled that these things were not conclusive. The decision turned on the commercial context of the payments, particularly the fact that the payer and payee were traders and without the contributions the company could not have continued in business.