Tribunal’s jurisdiction

Tax liability of damages received from solicitor

The taxpayer was paid advanced corporation tax (ACT) on dividends paid to its EU parent. It instructed its solicitor W to join the ACT group litigation order to pursue claims on its behalf. After HMRC made an offer to settle the taxpayer instructed W to agree its in-time claims only but the solicitor agreed with HMRC to settle the in-time and pre-limitation claims.

It emerged that W settled the pre-limitation claims for much less than the taxpayer would have been entitled to in light of the decision in CIR v Sempra Metals [2007] STC 1559 that such claims should be calculated on a compound interest basis. As a result the taxpayer obtained damages from W.

The taxpayer declared the compensation in its accounts but not in its corporation tax return. After an enquiry into the return HMRC amended it to...