Expenditure had dual purpose

The taxpayer couple ran a haulage business as a partnership. In 2003 the husband was convicted of being responsible for insecticide leaking into a river and causing pollution. He maintained his innocence until his death five years later.

The partnership claimed the legal fees of defending the criminal proceedings as a deduction in accounts on the basis the reputation of the business had been at stake. HMRC refused the claim.

The First-tier Tribunal said deciding whether or not the fees had been expended wholly and exclusively for the purpose of the trade under ITTIOA 2005 s 34(1)(a) was a matter of fact.

The prosecution had been against the husband as an individual and the contract with the solicitor had been made with him personally. The husband had strongly believed in his innocence and was aware that being found guilty would...