Treatment of court payment
A client in receipt of UC has received £40K into his bank account following a court case. This money is wholly and exclusively for business use. On that same day £18K was transferred out from the aforementioned account to his colleague thus ending their connection with the business.
In my understanding it is not a sale or transfer of a business asset but a one-off occurrence outside of the normal ingoings and expenditures of his business.
Nature of the business: property management
Nature of the payment: Compensation as a result of a claim against a landlord of one of several properties that the client managed as part of his business for breach of the landlord’s statutory obligations.
According to the guidelines below, it is a business asset and not something that came as the result of a sale and as such is exempt from needing to be declared as income until this business asset is converted into a sale:
“Assets which are used wholly or mainly for the purposes of a trade, profession or vocation which the person is carrying on, are disregarded indefinitely - Para 7 of Schedule 10 UC Regs 2013.
Meaning of business assets: H2022 Business assets include standard items such as machinery, vehicles, fixtures and cash held in the bank (including money held following the sale of assets). They may also include items such as customer lists and contacts, current and future contracts and goodwill.
H2023 In the event of their sale, assets may result in an income or capital receipt. A sale of an asset such as “work in hand” may result in an income receipt and so would be appropriate for inclusion in the profit and loss account. Where doubt exists as to whether a particular asset
1would represent a capital or income receipt upon its sale, the principles of commercial accounting must be applied i.e. the approach that would be taken by an accountant or the HMRC to such a receipt or holding. 1 UC Regs, reg 57(3) “
Chapter H2: Capital disregards (publishing.service.gov.uk)
In receiving this compensation was he ‘receiving a business asset’ and the only income to declare is if he had converted a business asset into a sale? Does it constitute a capital/income receipt as it has not been as a result of a sale of an asset?
Will UC accept this or treat it as personal income or capital?