Spoonful of sugar

A theatre production company staged a musical version of Mary Poppins in 2004 based on the book by PL Travers who died in 1996. The author had made an agreement two years earlier granting the firm an exclusive copyright licence to produce a musical of her famous work.

The agreement was amended in 2004 to assign the rights in return for royalties which were paid into the PL Travers’ will trust.

The trustees decided the payments were capital rather than income and should not be distributed but retained in the trust. They also decided the royalties were liable to income tax at the basic rate because they were not caught by special rate in ITA 2007 s 479 (formerly TA 1988 s 686).

HMRC said the special rate applied. The trustees appealed.

The tribunal was taken to various cases concerning the distinction between income...