You need to distinguish between capital and revenue for tax
purposes because the statute requires you to do so. The charging
section for income tax is at ICTA88/S1 (1):
In the early case of Attorney General v London County
Council [1900] 4TC265 (at page 293) Lord MacNaghten explained the
meaning of income tax:
‘Income tax, if I may be pardoned for saying so, is a tax on income. It is notmeant to be a tax on anything else.’
In this context you may view income and capital as opposites.
You should remember that for Schedule D Case I, unless
specifically brought into charge by statute, income must be in the
form of money or money’s worth. This follows from the
approach to income tax adopted by the House of Lords in Tennant v
Smith [1892] 3TC158. A bank required its agent to live at the 'bank
house', which included residential accommodation. The House of
Lords decided that the value of the house was not part of the
agent’s income. The House of Lords took this view because the
value of the house was not money or money’s worth in the
agent’s hands and could not be turned into money.
There is no Schedule D equivalent of the 'benefits in kind'
legislation for employees. This means that when a trader receives,
for example, as a reward for being a good customer of a particular
supplier a non-transferable holiday there is nothing to tax under
Case I of Schedule D. The holiday is not money and, being
non-transferable, is not convertible into money.
Although the essential characteristics of a capital sum are
the same for a receipt as for a payment
it does not follow that because a sum is capital in the
hands of one party toa transaction it is capital in the hands of the
other(s). For example a manufacturer may sell as trading
stock an item of plant which is acquired as a capital asset by the
purchaser.
You should apply the same principles to determine whether a
receipt is capital asyou would apply to determine if an expense is
capital. The case law concerning receipts is equally
applicable to expenses and vice versa.
