Compensation

Inconvenience

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The water board needed to replace some elderly pipes and, as a consequence, dug up the drive leading to a property owned by a flat management company, consisting of seven dwellings.  The residents weren't able to get in or out of their property (well, by car, anyway) for a few days and the water board offered them £1000 compensation for the inconvenience.

This seems to have been offered to the company rather than the residents.

Would there be any Corporation Tax liability on this ?

Replies (8)

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By Ruddles
11th Feb 2017 11:12

Instinctively I'd say no - but my instincts have been wrong in the past.

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RLI
By lionofludesch
11th Feb 2017 12:42

My thoughts were that, although the company is the name on the bill, it is the residents who were inconvenienced by the work.

But I'm open to alternative views.

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By MM Bookkeeping Services
11th Feb 2017 17:51

Here is my view:
Assuming in the tenants contract it states their rent will be xxx every month and for that they will receive the following - property at whatever address including parking area then as a tenant I would be looking to receive some compensation/reduction in rent from the landlord.
Even if it is not in the contract and I was a tenant and then found out the landlord had received compensation I would not be a happy bunny!
Sorry can't help with regards to CT as I don't deal with Ltd Co's.

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By lionofludesch
12th Feb 2017 13:54

Yeah, but it's not a normal landlord-tenant relationship. All the residents are directors - or, at least, one of each family is. They're not going to be surprised to find out that their "landlord" has received some compensation. It's not a secret.

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By chewmac
11th Feb 2017 19:01

As I understand it RMC's don't make profits and profits are never actually reported. Surplus income would end up as a creditor. Resident might therefore expect their service charges to be lowered next time around but this would depend on their agreement. Either way I don't think the companies themselves report profits or pay tax.

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By Mr_awol
14th Feb 2017 09:34

chewmac wrote:

As I understand it RMC's don't make profits and profits are never actually reported. Surplus income would end up as a creditor. Resident might therefore expect their service charges to be lowered next time around but this would depend on their agreement. Either way I don't think the companies themselves report profits or pay tax.

Very much wrong.

They might pay tax on investment income, money held on trust, etc - but more importantly it isn't correct to say they "don't pay tax".

The reason the don't 'normally' pay tax is because all of their income is derived from their memebers and as such they have little or no non-mutual income. This wouldn't fall into that category so it would appear to be taxable in all likelihood.

Of course, if they treat it as a payment in respect of service charges made on behalf of the residents (either those inconvenienced or all) but paid by a third party then you might have an argument for not taxing it (little bit weak) and common sense says it shouldn't be taxed.

The simplest way might be getting the water company to confirm in writing that the money was paid to the bill payer but is intended for forward distribution to the (possibly specific) residents involved.

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The triggle is a distant cousin of the squonk (pictured)
By Triggle
14th Feb 2017 09:59

Hi Lion

How is the compensation to be paid?

Is it going to be a specific payment to the company or will it be given as a credit on the company's water bill?

If the latter then that would, all things being equal, reduce the water rates charge and, in turn, the service charges payable by the residents. It could then be argued that "windfall" was just a reduction in charges rather than being an external receipt outside of the mutuality principle.

I still have my doubts though! I also think that Mr_awol's comment is worth pursuing.

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By lionofludesch
14th Feb 2017 10:33

They'll get a cheque, apparently. It'd represent about seven years' water charges which are incredibly cheap, imho.

They're now saying that a beech tree fell over after the new pipe was installed close to it - although the water company aren't admitting liability for that. They just describe the payment as for "disturbance.

I've not been able to find any guidance on this anywhere.

Worst case scenario is £205 Corporation Tax but I have a PITA resident whittling about it.

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