4. Trading Income - TR Flashcards

You may prefer our related Brainscape-certified flashcards:
1
Q

What are Trading receipts?

A

ONE - derived from trade (s.7)

TWO - must not be capital (s.96)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Higgs v Olivier [1953]

A

Payment of £15,000 to Olivier by film company so Olivier would not appear in any other film for 18 months

NOT TR – this money wasn’t derived from trade (payment was not in return for services/goods)

This compensation payment case has been limited to the facts (see Terry now - not exercising can be revenue payment)

NB. Such a receipt would now be taxed as income from an employment under the payment for restrictive undertaking provisions in ITEPA 2003 ss.225-226

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Murray v Goodhews (1976)

A

Not TR – the money wasn’t derived from payment in return for goods/services, it was paid voluntarily (just related to trade, not actually money from his trade)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Greene MR in IRC v British Salmson Aero Engines (1938)

A

difficulty of determining whether a payment is income or capital:

“in many cases it is almost true to say that the spin of a coin would decide the matter almost as satisfactorily as an attempt to find reasons”

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

IRC v John Lewis Properties [2003] - the steps for whether TR is income or capital

A

• Classification of a payment as income or capital depended on the commercial reality of the transaction, the nature of the transaction and the “factual matrix” in which it was set

5 factors:

  1. duration of assets disposed of
  2. value of asset (relative value)
  3. extent of any diminution in value
  4. lump sum or series of payments
  5. transfer of risk
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

IRC v John Lewis Properties [2003] - the case

A
  • JL got lump sum for selling their right to receive income from the land
  • CA held it was capital
  • sum was substantial, a single payment, and resulted in simulation in value of JL’s reversionary interests
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

White v Davies [1979]

A

payments from an EEC grant for undertaking to carry on a farming business in a particular way

  • TR
  • payments to make good temporary losses so they are income payments
  • received money for carrying out business in a particular way and it arose from the carrying of D’s trade

distinguished from Higgs - here taxpayer had a POSITIVE obligation to conduct farming trade in a particular way (not just underacting not to do something) , so impossible to say money didn’t arise from trade of farming

  • Higgs just an obligation NOT to do something, no positive obligations too
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Glenboig Union Fireclay v IRC [1921

A

COMPENSATION for STERILISATION of an asset = NOT TR

  • loss of right to work fireclay under neighbouring land
  • CAPITAL SUM
  • doesn’t matter that compensation payment was calculated by way of loss of profit
  • purpose of using land = impossible now (land is STERILISED) so it is compensation for loss of capital asset
  • if land was sold that would be capital so this is an equivalent
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Burmah Steamship v IRC [1931]

A

COMPENSATION for TEMPORARY LOSS of asset = TR

  • compensation paid for loss profits of owners because repairers over-ran contractual date for completion of work
  • payments were TR
  • compensation was for use of asset and of loss of profits = both = income nature even though it relates to capital asset because it is use of capital asset
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Thompson v Magnesium Elektron [1944]

A

COMPENSATION for RESTRICTION ON ACTIVITY = TR

  • taxpayer agrees to restrict his activities as part of his trading arrangements so that payment is a TR
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Van der Berghs v Clark

A

LONG contracts

  • compensation for ending the contract = CAPITAL receipt
  • equivalent of losing a fixed asset of the business
  • affected 90% of the business so its like getting rid of the whole business
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Kelsall Parsons v IRC

A

SHORT contracts
- one short contract terminated early, compensation = TR
- not like Van Der Berghs because this was:
ONE - merely one contract of many
TWO - short duration

contract was a source of profits, each one was like a trading stock, because they had several of them

  • contract doesn’t go to core of the business
  • compensation for T stock is same as getting money so compensation is in place of money you’d get from selling stock
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Sabine v Lookers

A

Where compensation is given but no loss to income was actually suffered:
= capital reciente

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

London and Thames Haven Oil Wharves v Attwooll

A

Compensation for injury (rather than total loss of) business asset:

£80,000 = comp to rebuild jetty
£20,000 = lost tanker fees (income)

80k = CAP
20k = TR
- any compensation separately attributable to loss of profits is a TR

Diplock LJ: ‘compensation for failure to receive a sum of money which would have been credited to amount of profits” … is a TR”

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Barr Crombie v IRC

A

Even if measure of compensation took remuneration into account, that doesn’t automatically mean TR

  • here it is CAP because it was made re: termination of business relations
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

J Lints v HMRC

A

Compensation is for surrogate for business turnover = TR

(doesn’t matter that solicitors get most business NOT from footfall, because solicitors got compensation and private individuals didn’t get it so it must be for TR)

17
Q

IRC v Cock Russell

A

enter a notional TR for your closing stock

- value of closing stock to be entered is the LOWER of cost of acquisition or market value

18
Q

Duple Motor Bodies v Ostime

A

FOR MANUFACTURERS (work in progress)

1) direct cost
2) on cost (which incl. overheads)

can choose either one, as long as consistent

19
Q

Morley v Tattersall

A

RECOVERABLE = NOT TR
- because at the time you get it, it is not a TR, it is meant to be customer’s money, held on behalf of customer by trader

20
Q

elson v prices tailors

A

IRRECOVERABLE = “true deposit” = TR at time of receipt

  • if no evidence as to whether customer/trader agree it is redeemable or not, then assume it is a true deposit, i.e. irredeemable. i.e. a TR
21
Q

Jay the Jeweller’s

A

exception to Morley

  • held on behalf of customer originally
  • BUT statute rendered them irredeemable so they become TR when statute renders it irrecoverable
22
Q

Sharkey v Wernher

A

if trader disposes of part of his stock in trade for own use he must bring it into his trading account as a TR

  • and insert market value of stock in trade at time of disposition
23
Q

Mason v Innes

A

SHARKEY DOESN’T APPLY TO VOCATION AND PROFESSIONS

General principle of income tax that a man was taxed on the basis of what he receive (not on what he might have received), Sharkey is an EXCEPTION which is confined to the trader with stock-in-trade and accounts on an earning basis

Sharkey does not apply to a professional man who had no stock-in-trade and whose accounts were properly kept on a cash basis

24
Q

Jacgilden v Castle

A

Re: sharkey

“because it is an exceptional line of authority, I think the court should be slow to extend it” – Plowman J