Unaccustomed receipts and their tax treatment

So, if someone pays you money in return for doing something you’re not in business to do, what are the tax consequences?  And does it matter if what you’re doing is illegal?

To dispose of the second point first: no, it doesn’t.  That was decided a long time ago when a tax assessment on a bookmaker making illegal off-course bets was upheld.  (Gambling by punters isn’t taxable: but bookmaking is.)  Intriguingly, HMRC’s guidance to its officers on ‘Illegal and Immoral Activities’ is coyly withheld from public gaze because of a claimed exemption under the Freedom of Information Act.

Broadly, taxability depends on whether there was an agreement before you provided the service in question that you would be paid for it.  For example, if you have come across some compromising information on a public figure which you tout around the red-tops until you find someone prepared to pay you to spill the beans, the money you receive will be taxable.  That’s the case even if you’ve never done such a thing before and never do it again.  Nor does it matter that in providing the information you may be committing some criminal offence or civil wrong.  And the ‘service’ might even be agreeing not to do something: if Lord Grantham’s attempts to bribe his chauffeur to abjure Lady Sybil had succeeded, Tom Branson would have suffered not only a lifetime of remorse but a charge to Income Tax to boot.

In computing what is taxable you are of course entitled to deduct your costs in providing the service, on the same principles as would apply if this were a business activity.  And there are some specific exemptions: for example, selling electricity from your solar panels to the National Grid is exempt from tax.  But the general rule is that if you are making a profit from providing any kind of service for a fee, you should think about the tax consequences.

By contrast, unsolicited rewards are treated in the same way as gifts, with no tax charge on the recipient.  If, on selling a property or a business, a friend is gracious enough to recognise my assistance in facilitating a profitable sale – whether by way of introduction or helpful suggestions on maximising the price – then no tax charge arises, regardless of the size of the gift.  Naturally, one may expect that HMRC may seek to satisfy themselves that there really was no prior agreement, especially where the amounts are significant: but this is ultimately a question of fact.

Beware, however, where there is an existing business or employment.  If I provide a service in the course of a business, any receipt that is attributable to the service – including any gratuitous overpayment or ‘tip’ – will normally be taxable.  Similarly, the scope of the charge on employment income, which charges tax on earnings “from” an employment, is wide.  Much legal argument has revolved around that word “from”: suffice to say in this note that if any link at all can be found between the holding of the employment and the receipt of money, careful investigation will be needed to determine the status of the receipt.

For more information, please get in touch with your usual BKL contact or use our enquiry form.



Sam Inkersole

In 2022, Sam won the Taxation’s Rising Star award at the Taxation Awards in and was named in the Accountancy Age 35 Under 35.

Jon Wedge

While Jon’s client work focuses on the financial services sector, he also oversees the firm’s assurance service, as well as supporting the trainees following in his footsteps.


Elana joined us in 2017 as an ACA trainee, after graduating from Durham University where she had studied languages. She is now a manager in our assurance team.


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