An individual member of a limited liability partnership was not entitled to deduct a payment to settle litigation relating to a previous firm, as the payment was not incurred wholly and exclusively for the purposes of the trade.
The respondent was a partner in a law firm (SSD) during the tax year 2007/08. Previously, he worked for another law firm (HH), which had ceased to trade and owed money to a bank (BL) and other banks. The respondent considered that if the banks’ claims were successful, he could be made bankrupt (and would therefore have lost his position as a partner in SSD). The respondent therefore agreed to pay BL €300,000 to release him from all claims to the bank.
The respondent’s payment to BL was made in January 2008. In October 2009, he amended his tax return for 2007/08, claiming a deduction of £215,455 against his professional income from SSD. Following an enquiry into the return, HM
