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B2.202 Capital receipts

Unless otherwise provided (see below), receipts of a capital nature are not to be brought into account in calculating the profits of a trade¹. This provision reflects the long established principle that capital receipts are ignored in calculating income². Instead, they are dealt with under the capital gains tax regime or the chargeable gains regime for corporation tax.

ITTOIA 2005 and CTA 2009 do not attempt to deal with whether a sum is of an income or capital nature. Ultimately this is a question of case law rather than accountancy (see B2.304)³.

For guidance on the tests for distinguishing between capital and revenue receipts and expenditure, see B2.204, B2.306.

HMRC states that the principles which determine whether an expense is capital should also be applied to determine whether a receipt is capital. However, it does not follow that because a sum is capital in the hands of one party to a transaction, it is capital in the hands