Ex gratia payment from customer
MarieNoelle
Registered, Moderator Posts: 1,368
Hi all
One of my client has advised me that a customer has transferred a sum of money to her company's account. When she queried it the customer just said this was to thank her for her time (over and above the services she had already invoiced). I'm sure I have seen somewhere that when a genuine ex gratia payment is made (i e a gift, with no expectation of further services) this escapes tax altogether but I would be grateful if someone could provide a link to to legislation to back this up.
Thank you
One of my client has advised me that a customer has transferred a sum of money to her company's account. When she queried it the customer just said this was to thank her for her time (over and above the services she had already invoiced). I'm sure I have seen somewhere that when a genuine ex gratia payment is made (i e a gift, with no expectation of further services) this escapes tax altogether but I would be grateful if someone could provide a link to to legislation to back this up.
Thank you
0
Comments
-
Thanks for your answer @mrme89.
I managed to find in HMRC manual the supporting case law I was looking for (for reference BIM41810).
"Voluntary payments or gifts are not taxable unless they can be attached to a pre-existing source (see Beynon v Thorpe [1928] 14 TC 1) [...] they are recompense for services provided that have not otherwise been adequately remunerated, [...] to make good a loss of profit (see Severne v Dadswell [1954] 35 TC 649 and Rolfe v Nagel [1981] 55 TC 585)".
It seems the test is even harder for Corporation Tax (client is Ltd co) so I will advise the client accordingly.
Agree with the VAT treatment - outside the scope.1 -
One last question: does the client need to raise an invoice for this or not? I don't think she needs to but would welcome your advice :-)0
Categories
- All Categories
- 1.2K Books to buy and sell
- 2.3K General discussion
- 12.5K For AAT students
- 323 NEW! Qualifications 2022
- 165 General Qualifications 2022 discussion
- 11 AAT Level 2 Certificate in Accounting
- 56 AAT Level 3 Diploma in Accounting
- 88 AAT Level 4 Diploma in Professional Accounting
- 8.8K For accounting professionals
- 23 coronavirus (Covid-19)
- 272 VAT
- 92 Software
- 273 Tax
- 135 Bookkeeping
- 7.2K General accounting discussion
- 200 AAT member discussion
- 3.8K For everyone
- 38 AAT news and announcements
- 345 Feedback for AAT
- 2.8K Chat and off-topic discussion
- 582 Job postings
- 16 Who can benefit from AAT?
- 36 Where can AAT take me?
- 42 Getting started with AAT
- 26 Finding an AAT training provider
- 48 Distance learning and other ways to study AAT
- 25 Apprenticeships
- 66 AAT membership