BIM42960 - Specific deductions: compensation
& damages: capital
Brief outline of what to consider to determine if the payments
is capital
A payment of compensation or damages may give rise to a capital
asset or advantage where:
- it is part of a transaction for purchase of shares or a
business (see
BIM42955).
- it is connected with the acquisition, disposal, improvement or
modification of a fixed capital asset. This includes a payment to
get rid of a disadvantageous capital asset. See Tucker v Granada
Motorway Services Ltd [1979] 53TC92 - see
BIM35320, Walker v The Joint Credit Card
Co Ltd [1982] 55TC617 - see
BIM35510, Mallett v Staveley Coal &
Iron Co Ltd [1928] 13TC772 see
BIM35625, and Cowcher v Richard Mills
& Co Ltd [1927] 13TC216 see BIM35625. But where a compensation
payment incurred in the normal course of trading relates, for
instance, to a trading contract and is not in connection with an
identifiable capital asset, it will be an allowable deduction. See
Anglo Persian Oil Co Ltd v Dale [1927] 16TC253 - see
BIM35505, Cr. of Taxes v N'changa
Consolidated Copper Mines Ltd (PC (1964), AC948 - see
BIM35635) and Walker v Cater Securities
Ltd [1974] 49TC625.
