Payments constitute profit share

The two appellants were chartered accountants and former partners of a big four firm of accountants which was a limited liability partnership.

They took compulsory retirement in 2001. Normal practice in these circumstances meant that they would receive their share of profits up to the date of retirement. In addition they each received an approved further payment.

An issue arose over the tax liability of the approved payments. The appellants said the further payments did not constitute profits of the partnership rather they were non-taxable ex gratia payments.

On the other hand the partnership’s return showed the payments as being part of the appellants’ share of the profits.

This was incorrect according to the appellants who said the partnership should have deducted the further payments from the computation of the profits.

HMRC argued that the further payments were profits and therefore taxable.
The...