Income Tax (Trading and Other Income) Act 2005 section 16A

Voluntary office-holders: compensation for lost profits

Section 16A deals with how compensation payments made to voluntary office-holders by relevant authorities for lost trade, profession or vocation profits are taxed — specifically, ensuring they are treated as trading income rather than employment income.

• Where a person holds an unpaid voluntary office with a relevant authority and also carries on a trade, profession or vocation, any payment made solely to compensate for profits lost as a result of performing the duties of that office is taxed as trading income
• The payment must not exceed the amount of lost profits, defined as the difference between what the person would have earned from their trade had they not carried out the office duties and what they actually earned
• Without this provision, such payments would normally be taxed as employment income under Part 2 of ITEPA 2003; this section overrides that default treatment
• The terms "relevant authority" and "voluntary office" take their meanings from section 299A of ITEPA 2003