A small community council will be managing a fund, set up by an energy provider, and will be making payments to residents within the council area, to assist towards their energy bills. The residents have to apply for this money, and provide proof of full time residential occupation.
Essentially this is being done to curry favour with the locals who have to put up with their windfarms (although that is not the expressed reason for the fund, that is what it comes down to).
The question is whether this money will be taxable in the recipients hands.
My tuppence:
- They are clearly not trading, so it cannot be trading income.
- They are not receiving it in respect of the use of their property, so it isn’t property income.
- I think we can safely disregard it being interest, dividend or employment income without much debate.
- From a CGT perspective, they are not disposing of any asset, so this is not in pint.
- Could it be miscellaneous income? There are no services being provided for this., so don’t think it’d be caught by these provisions.
- Is it an annual payment? This is my only niggling doubt is whether or not it is taxable. If it is regarded as income, then using the principles in the Hargreaves Lansdown case: it is capable of recurrence; it is income, not capital; it represents pure income profit. But is it payable under a legal obligation? There is no obligation for these payments to be made. But does the creation of a fund, offering to pay amounts to local residents, create such an obligation… I’m not sure.
I’m swaying towards it being not taxable, on the basis that it is a gratuitous payment, but am not 100% convinced I’m right just yet.
Has anyone come across anything similar, or got any opinions as to whether or not it is taxable?
Thanks in advance for any replies.
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Replies (3)
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What does the agreement (assuming there is one) between the "small community council" and the energy provider say? Are council 'members' potential recipients?
Is there any entitlement to payments? If not, on whose discretion and on what basis are payments to be made?
What kind of entity is the "small community council" (charity, eg)?
A Community Council in Scotland is a voluntary organisation set up by statute by the Local Authority and run by local residents to act on behalf of its area. It is the most local tier of elected representation.
This strikes me as similar to the payments made to OAPs in Shetland from money received from oil companies in return for the disturbance involved to the community for the construction and operation of the Sullom Voe oil terminal.
The oil companies paid money to the council that was transferred to a charitable trust. This trust invested the money then used the income to pay various grants. Among these grants was an annual payment to island resident OAPs (around £200 each year). The Inland Revenue (as it was at that time) agreed these grants were not taxable income in the hands of the recipients.
Thanks scalloway.
The agreement sounds pretty similar. The only difference is that the electric companies are paying the money direct to the charitable trust it seems, which is managed by the community council.
Accountant A, I wouldn't say there is an entitlement as such. Basically the fund has been advertised in the local community (leaflets, message at community hall,notice in paper), and if residents apply within the required time frame, they will receive a payment. If not, they get nothing, and there is no recourse.
