BIM50710 - Literary profits: awards and bursaries

There are many prizes and awards open to authors and other creative artists (one publication lists nearly 200 for authors alone) and entering competitions or seeking awards is a normal part of such professions.

Where an award, grant, bursary or prize is received, the determining factor in considering whether or not such an award etc is taxable is the quality of the award in the hands of the recipient. If it comes to the individual as an incident in the exercise of his or her profession or vocation (including a subsidiary or part-time activity the profits from which are assessed under Case II of Schedule D), it should normally be treated as a professional receipt within Case II of Schedule D. (See Temperley v Smith [1956] 37TC18, Smart v Lincolnshire Sugar Co Ltd [1937] 20TC643, Duff v Williamson [1973] 49TC1, CIR v Falkirk Ice Rink Ltd [1975] 51TC42, and McGowan v Brown and Cousins [1977] 52TC8). The facts relating to the award or prize should be considered for each case.

In some cases publishers enter works for competitions and entries direct from the author are not permitted although the permission of the author is usually a part of the entry conditions. To attract liability, it is not essential that the author should have applied for the award or prize personally. Nor does the author necessarily have to undertake to complete a particular piece of work during the currency of the award or to refund the award in the event of failure to complete a programme of work.

Case II of Schedule D is not the only charging section. The facts may show that the award is one of the following-

• Income from an office or employment (see SE00510 onwards). Where an award is made to a person receiving full-time instruction at a university or other establishment and the award does not exceed certain financial limits, exemption may be available under ICTA88/S331 (see SE06200 to SE06214). Such cases are likely to be rare, however, and, in particular, established academics or leading members of professions will be unlikely to qualify since they will not normally be receiving full-time education.
• A profit of a casual or occasional nature chargeable under Cases VI of Schedule D (see (a) of BIM80105).
• Exceptionally, an annual payment giving rise to liability under Case III of Schedule D.

A literary etc prize which is unsolicited, and which is awarded as a mark of honour, distinction or public esteem in recognition of outstanding achievement in a particular field, including the field in which the recipient operates professionally, is not chargeable to tax. In 1979 the Special Commissioners found for the taxpayer in a case involving a literary award. The case attracted some press publicity as a reporter was admitted to the proceedings. The book was entered for the competition by the publisher without the author's consent. The decision turned very much upon its own facts and, in particular, a finding that the award was unsolicited and did not represent the proceeds of exploitation of the book by the author personally or by his publishers as agents on his behalf.

Case of doubt or difficulty which cannot be resolved on the lines outlined above should be referred to Business Tax (Technical).