The Upper Tribunal has published its decision on the tax treatment of compensation payments made by banks to businesses. These payments were made following an FCA review into the mis-selling of interest rate hedging products. The Upper Tribunal, agreeing with HMRC and the First-tier Tribunal, concluded that the payments were chargeable to income tax, being compensation for payments which had originally been deductible expenses of the business.

In dismissing the appeal, the Upper Tribunal found that the approach of the taxpayers, seeking to rely on an economic concept of ‘opportunity cost’, was not helpful and obfuscated the facts of the case and the task of the Tribunal.

Laura Poots KC appeared for HMRC.

You can find a copy of the decision here.

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