The taxpayer sought to set off against tax some pounds 200,000 spent defending professional disciplinary proceedings. The House was asked whether this was ‘money wholly and exclusively laid out or expended for the purposes of the trade.’
Held: Where legal costs had been incurred in the defence of professional misconduct proceedings in order to protect the partnership’s ability to continue in practice, such costs were deductible against tax having been incurred wholly and exclusively for the purpose of the trade.
Judges:
Lord Hoffmann, Lord Mackay of Clashfern, Lord Clyde, Lord Hutton Lord Hobhouse of Wood-borough
Citations:
Times 18-Jun-1999, Gazette 07-Jul-1999, [1999] UKHL 6, [1999] 1 WLR 1333, [1999] 3 All ER 491
Links:
Statutes:
Income and Corporation Taxes Act 1988 130(a)
Jurisdiction:
England and Wales
Citing:
Appeal From – David McKnight (Inspector of Taxes) v Sheppard CA 7-May-1997
Legal expenses incurred by a professional in defending disciplinary proceedings are deductible from taxable profits. . .
Cited – Mallalieu v Drummond HL 27-Jul-1983
The taxpayer was a barrister. To comply with Bar guidance on court dress, she wore, in court and in and to and from chambers black dresses, suits and shoes and white blouses. The clothing were perfectly ordinary articles suitable for everyday wear. . .
At first instance – McKnight (Inspector of Taxes) v Sheppard; Sheppard v McKnight ChD 21-May-1996
Legal costs and fines not deductible – insufficiently connected with trade. . .
Cited – Morgan v Tate and Lyle Ltd HL 1955
The words ‘for the purposes of the trade’ in the statute mean ‘for the purposes of enabling a person to carry on and earn profits in the trade’. Money spent for the purpose of preserving the trade from destruction can properly be treated as wholly . .
Cited – Inland Revenue Commissioners v Von Glehn CA 1920
The company had paid a penalty during the First World War under the Customs (War Powers) Act 1915 for exporting goods without taking all reasonable care to secure that the ultimate destination should not be enemy territory. They sought to set off . .
Cited – The Herald and Weekly Times Ltd v Federal Commissioner of Taxation 21-Nov-1932
(High Court of Australia) The taxpayer newspaper sought to set off against its liability to income tax, sums which it had paid out in damages for defamation.
Held: They were deductible. Such claims against a newspaper are a ‘regular and almost . .
Cited – Edwards (Inspector of Taxes) v Bairstow HL 25-Jul-1955
The House was asked whether a particular transaction was ‘an adventure in the nature of trade’.
Held: Although the House accepted that this was ‘an inference of fact’, on the primary facts as found by the Commissioners ‘the true and only . .
Cited – Smith’s Potato Estates Ltd v Bolland (Inspector of Taxes) HL 1948
The taxpayer claimed to deduct the legal costs of contesting an assessment to tax. The dispute was about the computation of the taxpayer’s profits. It assumed that those profits were ascertainable, one way or another, at the time when the dispute . .
Lists of cited by and citing cases may be incomplete.
Income Tax
Updated: 19 May 2022; Ref: scu.83555