Commentary

B2.204 Lump sums treated as capital or revenue receipts

Business tax
Business tax | Commentary

B2.204 Lump sums treated as capital or revenue receipts

Business tax | Commentary

B2.204 Lump sums treated as capital or revenue receipts

The fact that a receipt is in a lump sum does not necessarily mean that the item is a capital one. A lump sum has to be treated for its capital or revenue character in the same way as a series of sums. However, the fact that it is a lump sum, with little or no possibility of its recurrence, points to the receipt being a capital item, though this test is not of itself conclusive. On the payments side it is an important consideration whether the payment of the lump sum extinguished a liability of the payer to make a series of revenue payments in the future; see the Anglo-Persian Oil Co1 case. On the receipts side a cogent test is whether the lump sum was received in consideration of the recipient's surrendering an asset which was wholly or mainly the foundation of his source of income; see Barr, Crombie & Co2.

The summary below distinguishes between capital receipts and revenue receipts which were the subject of various cases.

Capital receipts

The following have been held to be capital receipts:

  1.  

    •     compensation received by a fireclay company from a railway company for leaving part of the fireclay unworked3

  2.  

    •     sum received on cancellation of the company's future rights

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