BIM40101 - Receipts: compensation & damages: introduction

The basic approach

When considering the character of a compensation receipt, you should begin by asking two questions:

1. is it a receipt of the trade or does it arise outside the trade, and
2. if it is a receipt of the trade, is it capital or revenue?

To answer these questions you need to establish for what the compensation actually was received. This may require a good deal of research. In particular, it is important not be misled by labels. You should consider all of the surrounding circumstances. You should examine the formal documentation such as contracts and any correspondence between the parties and their representatives. This may however, not tell the whole story and, where appropriate, you should request a meeting with those who sought or negotiated the compensation should in order to establish whether the documentation fully reflects what happened. It may also be useful to liase with the payer's office.

As regards the treatment of compensation payments to:

• farmers for disturbance or for compulsory acquisition of land, etc, see BIM55220 - BIM55240.
• licensee tenants of public houses on loss of tenancy, see also CG72450 onwards.

For compensation payments that take the form of government etc grants, see BIM40450 onwards.