BIM40055 - Receipts: Excluded revenue: liability

It should not be assumed that a sum received is a trade receipt solely because nothing would have been received had the trade not been carried on. The receipt must represent a profit `arising from' the trade (ICTA88/S18 (1)).

Further guidance about this may be found, in the context of compensation and damages receipts, at BIM40100+ and, for voluntary receipts, at BIM41800+. Broadly speaking - and a one sentence summary is no substitute for the more detailed guidance referred to - the distinction is between money received in the capacity of trader; and that received in a personal capacity. Examples of sums received in a personal capacity are sums received because the recipient has suffered personal injury (compensation), or because the receipt is nothing other than a personal `thank you' (voluntary payment). Such `non-trade' receipts are not common, and are restricted to smaller trading concerns. Personal injury compensation is only excluded if the injury was suffered by and is personal to the proprietor himself. In particular, it does not apply to companies.

As to whether investment income such as bank interest is capable of being regarded as trading income, see BIM40800+. It should be borne in mind that income which is taxable under one of the other Schedules is not taxable under Schedule D (Salisbury House Estate Ltd v Fry [1930] 15TC266).

Trading losses relating to earlier periods may in some circumstances be set against interest or dividends of the current period. In addition to BIM40800+, see BIM75000+ (Income Tax losses) and CTM04000 onwards (Corporation Tax losses).