Summary 

A payment by a company by way of a director’s loan account adjustment on the incorporation of a business was not for goodwill as the appellant contended because no goodwill existed to transfer at the time, and the payment was treated as employment income instead. 

Background 

The appellant, a chartered accountant, carried on his accountancy business as a self-employed sole trader (D) between 1988 and April 1996. Between May 1996 and 21 August 2003, the appellant was in partnership. The appellant formed a new company (A), of which the appellant was the sole shareholder and director. On 21 August 2003, the partnership transferred its accountancy practice to A, which started trading on 1 September 2003.  

The accounts of A for the year ended 31 August 2004 showed the company’s turnover to be £1,005,023 and a net profit of £160,400.  

On 11 June