Tax deductibility of a compensation payment made?

Tax deductibility of a compensation payment made?

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Scenario-An IFA is required to make a compensatory payment to a client. The amount is to reflect the income lost that would have been earned from a more suitable product. Therefore it is agreed that the IFA should make a payment to their client as a compensation.

Is this disallowed in the tax comp?

Thank you for any confirmation

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By thisistibi
07th Apr 2011 16:25

Probably ok

As set out in the HMRC manuals BIM42951, you need to consider whether the compensation was:

-  Wholly and exclusively for trade purposes:  which it probably was;

-  On revenue account:  which it probably was.

If the compensation is required due to an infraction of the law, then it will not be allowable.

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