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Is a prize won in competition a trading receipt?

Is a prize won in competition a trading receipt?

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A singer wins over £10,000 in a national competition for young singers. She is registered for Self Assessment although until now she has had no tax liability. She had left college by the time she entered the competition. I have advised her that the prize is taxable.

Surprisingly she is not happy with this advice and the organisers of the competition have expressed their belief that as the prize "is in the nature of a bursary" intended to allow the young singer to continue their studies it is tax-exempt. They do not however attach any strings to the prize and the singer can spend it how she wishes.

Am I being unfair or is this clearly a receipt of her profession?

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Euan's picture
By Euan MacLennan
13th Feb 2013 14:51

Taxable

I agree with you that as it is a prize in a competition for singers and she is a self-employed singer, the prize is taxable, but any costs associated with entering the competition are deductible.

I suspect that when people say that something "is in the nature of" something else, the something else is prima facie what it actually is - in this case, a prize.

Read this comment on an earlier thread.

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By carnmores
13th Feb 2013 15:00

i agree BUT

there are many times when prizes ar not taxable and it is entirely possible that it could be a bursary so one would need to see the terms of entry. in particular i note the comment '... to continue her studies..'

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By George Attazder
13th Feb 2013 15:01

In the alternative...

... is she REALLY carrying on a self-employment, or is she just earning a few buttons from her hobby and then claiming all her expenses as losses?

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By sijolees
13th Feb 2013 16:48

Thanks everyone - the rules of the competition state that it "is open to singers of any nationality who have completed at least one year of a continuous higher education course in music at a recognised conservatoire or music school...All singers must be under the age of 29...The Competition reserves the right, if required by law, to deduct Withholding Tax from any payment made to competitors not resident (for tax purposes) in the UK".

There is nothing to say the money must be spent in further education. 

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By Exector
15th Feb 2013 12:07

Potentially relevant HMRC commentary

The extract is from commentary on Literary profits in the BIM, but is worded to encompass other creative professions, which will clearly extend to professional musicians:

 

"There are many prizes and awards open to authors and other creative artists (one publication lists nearly 200 for authors alone) and entering competitions or seeking awards is a normal part of such professions.

Where an award, grant, bursary or prize is received, the determining factor in considering whether or not such an award etc is taxable is the quality of the award in the hands of the recipient. If it comes to the individual as an incident in the exercise of his or her profession or vocation (including a subsidiary or part-time activity the profits from which are assessed under Case II of Schedule D), it should normally be treated as a professional receipt within Case II of Schedule D. (See Temperley v Smith [1956] 37TC18, Smart v Lincolnshire Sugar Co Ltd [1937] 20TC643, Duff v Williamson [1973] 49TC1, CIR v Falkirk Ice Rink Ltd [1975] 51TC42, and McGowan v Brown and Cousins [1977] 52TC8). The facts relating to the award or prize should be considered for each case."

"A literary etc prize which is unsolicited, and which is awarded as a mark of honour, distinction or public esteem in recognition of outstanding achievement in a particular field, including the field in which the recipient operates professionally, is not chargeable to tax. In 1979 the Special Commissioners found for the taxpayer in a case involving a literary award. The case attracted some press publicity as a reporter was admitted to the proceedings. The book was entered for the competition by the publisher without the author's consent. The decision turned very much upon its own facts and, in particular, a finding that the award was unsolicited and did not represent the proceeds of exploitation of the book by the author personally or by his publishers as agents on his behalf."

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By BKD
15th Feb 2013 14:27

One question is why?

Why did she enter the competition? Was she interested only in proving that she was better than everyone else, or did she enter in the hope/expectation that she would receive financial reward (was she aware of the financial nature of the prize)? If the latter, I have little doubt that the prize will be taxable. We are told that she is a self-employed singer, and as such may have a number of income-earning avenues open to her - pub-bookings, cruise ship appearances, recording contracts, concert tours etc etc etc. Prize competition is simply one more means of earning income from her chosen profession.

But the crucial line in the above comment is "The facts relating to the award or prize should be considered for each case." IMO, those 'facts' include the motive for entering the competition. At the moment, only the OP and his client know what all those relevant facts are.

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By sijolees
15th Feb 2013 16:10

Thanks to everyone again. The client is an opera singer and the competition advertises that "Young professional singers compete for glittering cash prizes plus the chance to gain instant international recognition."

 This does not sound like a scholarship to me. The path to a successful career in this area is long and hard and involves constant study but nonetheless I can't see how we can divorce entering the competition from the exercise of her profession. I feel the competition organisers are being disingenuous when they say it is in the nature of a bursary and expect that that should be sufficient to confer exemption from tax. But I am not making myself popular on this one.

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By carnmores
18th Feb 2013 13:54

final word

it was solicited was it not?

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By sijolees
18th Feb 2013 14:07

Yes it was solicited - but on the other hand so are scholarships. 

My feeling is still that this is taxable: hopefully she has invested in some expensive training courses which we can then deduct (can of worms alert).

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By carnmores
18th Feb 2013 14:18

i agree

and by implication so does Exector ( i think), but without sight of the entry conditions its impossible to tell.

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By Exector
19th Feb 2013 14:16

@ Carnmores

Yes!

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