»Ê¹ÚÌåÓýapp

Case law makes it clear that a payment for goods or services cannot be an annual payment, because it is does not represent pure income profit to the recipient. In the early case of Earl Howe v CIR (7TC289), Scrutton LJ gave the following much-quoted examples (p303).

“It is not all payments made every year from which Income Tax can be deducted. For instance, if a man agrees to pay a motor garage £500 a year for five years for the hire and upkeep of a car, no one suggests the person paying can deduct Income Tax from each yearly payment. So, if he contracted with a butcher for an annual sum to supply all his meat for a year, the annual instalment would not be subject to tax as a whole in the hands of the payee, but only that part of it which was profits.�

»Ê¹ÚÌåÓýapp doctrine of pure income profit was developed by the House of Lords in CIR v Corporation of London (as Conservators of Epping Forest), 34TC293, in which annual contributions by the Corporation of London to make good deficiencies in the income of a charity were held to be annual payments. Lord Reid said (p329):

“Case III only deals with payments which are profit income in the hands of the recipient, and if a receipt has to go into a profit and loss account and be set against outgoings it cannot be all profit.�

He stressed, however, that what is important is the quality or nature of the payment, not whether or not it appears in a set of accounts.

»Ê¹ÚÌåÓýapp concept of pure income profit was considered in the case of »Ê¹ÚÌåÓýapp Commissioners for HM Revenue and Customs v Hargreaves Lansdown Asset Management Ltd: [2019] UKUT 0246 (TCC). This case involved payments of commission (described as bonuses) to investors by an investment fund platform. »Ê¹ÚÌåÓýapp decision confirmed that the payments were pure income profit and therefore taxable as annual payments. »Ê¹ÚÌåÓýapp relevant case law on annual payments has not changed for many years and this case confirms that the principles arising still apply when considering whether or not a payment is an annual payment.