Prevailing practice

The taxpayer company set up an employee benefit trust which made payments to beneficiaries in 2000 2001 and 2002.

The firm deducted the payments from trading profits in its corporation tax returns. HMRC later said the deductions were not due because they were potential emoluments within FA 1989 s 43(11) (Macdonald v Dextra Accessories Ltd [2005] STC 1111).

The Revenue issued discovery assessments. The taxpayer appealed.

The issue before the First-tier Tribunal was whether the 2000 return had been “on the basis or in accordance with the practice generally prevailing at the time when it was made” (FA 1998 Sch 18 para 45(b)).

The tribunal said “practice generally prevailing” should be taken to mean one that had to be readily ascertained. For that to be the case the practice had to be precise certain and relatively longstanding although it did not necessarily have...