Readers’ forum: Is a compensation receipt from a power company taxable?

We are seeing accounts coming through showing compensation receipts from power companies arising from power cuts caused by storm Arwen last autumn. Some of the receipts are less than £100 but some clients have received hundreds of pounds of compensation as power supplies were interrupted for several days in the aftermath of the storm.

We are therefore considering if these are taxable receipts received by a business. Our research has taken us to HMRC’s Business Income Manual BIM 40101 which suggests that the basic approach in establishing whether a compensation receipt is taxable is to first consider if ‘it is a receipt of the trade or does it arise outside the trade’.

The compensation payments were paid at a fixed amount of £70 for each 24 hours that power was off. Therefore it is not linked to loss of earnings. The same compensation was payable to all customers whether they...