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Capital nature

23 November 2012
Issue: 4381 / Categories: Tax cases , Business , Income Tax
Grant Bowman t/a The Janitor Cleaning Company (TC2284)

The taxpayer ran a cleaning business. He included a deduction of £11 000 in his tax return describing it as a consultancy payment made wholly and exclusively for the purposes of his firm.

HMRC did not allow the amount saying it was capital rather than revenue. The taxpayer appealed.

The First-tier Tribunal found the £11 000 fee comprised two separate payments that were not connected with the day-to-day running of the business.

The first sum related to the acquisition of an identifiable asset and was therefore a capital expense.

The second fee was made to secure a long-term contract that would provide the taxpayer’s business with an annual income of £100 000 substantially more than its existing turnover. It was made to put the taxpayer in a position to earn income from the contract rather than in the course of earning income for the business.


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