Special business receipts (2) for income tax purposes - L11 Flashcards
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What two tests determine if a grant/subsidy is taxable?
(1) It must be a business receipt, and (2) of an income nature.
What did Seaham Harbour Dock Co v Crook decide?
Grants are not business receipts – whether income or capital is irrelevant.
What did Lincolnshire Sugar Co v Smart decide?
Grants are business receipts and taxable if income in nature.
What presumption did Ryan v Crabtree Denims Ltd introduce?
Grants are presumed income unless for capital purposes or unusually large.
What does s. 105 ITTOIA 2005 say about industrial development grants?
Taxable unless for capital expenditure or capital asset loss.
When are voluntary payments taxable?
If they are business receipts and of an income nature.
What did Simpson v John Reynolds decide?
Gifts are taxable if they reward past services or support future relations.
What case is an example of a moral obligation payment for past services?
McGowan v Brown – estate agents received compensatory sums.
When might a customer donation be taxable?
If it supports future business – IRC v Falkirk Ice Rink Ltd.
What are “business leftovers”?
Items not meant to make profit but later exploited (Wain’s Executors v Cameron).
What are “spin-offs”?
Incidental income from business, like selling film rights – Howson v Monsell.
How does s. 193 ITTOIA 2005 treat “know-how”?
Always taxable as income, even if capital in nature.
How is a reverse premium taxed under s. 101 ITTOIA 2005?
As trading income – even though normally capital.
What is a notional receipt?
Treating a non-cash benefit or withdrawal as a taxable cash amount.
What is the rule in Sharkey v Wernher (now in s. 172B ITTOIA 2005)?
Withdrawal of stock is treated as sale at market value.
What do ss. 172D–172E ITTOIA 2005 cover?
Gifts or undervalued sales are treated as at market value, and recipient must treat this as acquisition cost.
What does Jacgilden v Castle decide about undervalue sales?
Statutory rules don’t apply if price was commercially negotiated.
Do Sharkey v Wernher rules apply to professions or vocations?
No – confirmed in Mason v Innes and statutory silence.
Why was the Sharkey rule codified in statute?
To override accountancy practice and clarify that market value, not cost, must be used.
What is the main criticism of the Sharkey rule?
It taxes profits not actually made – Kerridge and Potter argue it’s too harsh.
