Redress payments are taxable

The taxpayers ran a property business. In 2006 they bought two interest rate hedging products (IRHPs) from HSBC and one from RBS. It was subsequently agreed that some of these products had been missold and the Financial Conduct Authority (FCA) set up a compensation scheme. The objective of this was to put customers back in the position they would have been in had it not been for the missale.

The taxpayers received compensation but did not include the sums in their self assessment tax returns as trading receipts. After an enquiry into their returns HMRC issued closure notices assessing them to tax on the payments. The taxpayers appealed. In essence they submitted that the payments were for the cost of lost opportunities of being able to enter into different hedging products and as a result were part of the profits of the property business. So...