In the instructions that follow, some guidance is given about particular circumstances. For example if the receipt is referable to:
In some instances, however, an amount of damages or compensation
may not have any readily identifiable label. The outcome may not
turn on a particular test and any of the factors considered under
the above headings might be relevant, as well as those general
principles that affect all receipts.
At one end of the spectrum, an amount received by a trader in
consideration of the cessation, in whole or in part, of his
business may be a capital receipt. Though not strictly a
‘compensation case', Evans Medical Supplies Ltd v Moriarty
[1957] 37TC540 (see
BIM35705) is a good illustration of the
principles involved. Recent cases before the Special Commissioners
(A Consultant v HMIT (SpC180) (see
BIM35535) and The Croydon Hotel and
Leisure Company Ltd v Bowen (SpC101) (also see BIM35535) indicate
the severity of the test to be met for a finding of capital.
On the other hand, compensation in respect of some
interference with the business itself (as distinct from
interference with a particular asset - BIM40115 refers) which does
not involve cessation may, in certain circumstances, fall to be
regarded as a trading receipt. An example of this type of payment
is one made for an ascertained deficiency of profits incurred by
the trader during a period of Government control of the business
(see Charles Brown & Co. v CIR [1930] 12TC1256).
If on a proper analysis of the circumstances, a payment is
made to compensate a trader for loss of profits (as distinct from
loss of profits being simply how the payment is measured) then it
is likely to be a trading receipt (Lang v Rice [1983] 57TC80;
Donald Fisher (Ealing) Ltd v Spencer [1989] 63TC168).
