Herald Series Tax Column 409

Q. I run a small cycle accessory company. We provide a lot of goods to large retailers. Sometimes we find an invoice will be paid twice by our customers. My old accountant insisted on showing the double-receipts as part of my profits. I always felt this was harsh – if someone pays me for a mistake, it is not part of my trade so why pay tax on it? What should I do?

A. Your accountant was taking a rather outdated view of things. A recent tax case confirmed that such erroneous payments are not trading income and do not need to be declared as such for tax purposes.

You should be aware that this precedent came from the Special Commissioners, and as such one must wonder as to whether the decision will stand once it has passed through the higher courts. For the time being it is reasonable to exclude the income, but if I were you I would keep hold of the “saved” tax just in case we see future cases going against the taxpayers.

You do have the right to amend your earlier tax returns and to recover the “unnecessary” tax payments, but again I would recommend caution.

Whilst I can comment on the tax side of things, you may well need to consider the legal implications of retaining a payment that you know you are not entitled to.

Date of Publication::

Source of Publication:

24 September 2009

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