Ex gratia payment from customer

MarieNoelle
MarieNoelle Trusted RegularHampshire/Surrey borderModerator, MAAT, AAT Licensed Accountant Posts: 1,433
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

Comments

  • MarieNoelle
    MarieNoelle Trusted Regular Hampshire/Surrey borderModerator, MAAT, AAT Licensed Accountant Posts: 1,433
    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.
    mrme89
  • MarieNoelle
    MarieNoelle Trusted Regular Hampshire/Surrey borderModerator, MAAT, AAT Licensed Accountant Posts: 1,433
    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 :-)
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