Revenue or capital?

In 2001 the appellant company acquired a solicitors’ practice from a partnership. One of the former partners P was entitled to an annuity.

Following negotiations it was agreed that the company would pay P a lump sum of £1.15 million and thereby be released from the obligation to pay the annuity.

This sum was not paid immediately but credited to a loan account from which P was free to draw as he wished. The company claimed the sum as a deduction in computing its profits for the year ended 31 December 2004.
HMRC rejected the claim arguing that it was a capital expense.

The First-tier Tribunal found that the company had assumed the obligation to pay P’s annuity as part of the consideration for its acquisition of the partnership business.

The lump sum payment made to commute the annuity was not done to...