Compensation Payment

Compensation Payment

Didn't find your answer?

If anyone could offer any advice here it would be much appreciated.

My client has received a compensation payment from a large catalogue company. Basically, the company accidently printed my client's telephone number in their catalogue and therefore received lots of calls, but not from their customers!

The client seems sure this payment which was paid out for 'loss of business' will not be taxable. I am not so sure.

Despite speaking to many of my colleagues, I have not come across a convincing reply. Firstly whether or not to treat as income or capital and secondly whether or not it is taxable!

Any help would be most welcome.
Merry Christmas!

SG
s g

Replies (2)

Please login or register to join the discussion.

avatar
By User deleted
19th Dec 2006 09:38

Your instincts are right-this is taxable as income
From the tax perspective, unless the payment is for the loss of " the whole structure of the appellants’ profit-making apparatus"{Van den Berghs Ltd v Clark}, or is the disposal of a chargeable asset it will be treated as part of the trading profits of the client.

Even without a string of cases which confirm this, a simple analysis of what has happened shows that this receipt is trading income.

Why has he been compensated? Surely because of the trouble and inconveneience to which he has been put, which has affected his every day business and so either increased his costs ,reduced his revenue or both.
It has not impacted on his capital assets such as goodwill or the physical apparatus with which he trades.

From an accounting perspective, this is, I venture to suggest, trading income, but others may disagree. If its amount is exceptional, perhaps a note to the accounts highlighting this would be approriate.

Thanks (0)
avatar
By AnonymousUser
19th Dec 2006 11:27

Agree
Arguably your client recieves automatic tax relief for for the losses incurred and must pay tax on the compensation recieved i.e. he is in no better or worse situation as result of the error.

Thanks (0)