Payment to preserve trade

The taxpayer was a partner in law firm Haarmann Hemmelrath (HH) until the end of 2005 when the London office was acquired by Squire Sanders & Dempsey for which he became a partner.

He claimed a deduction in October 2009 under ITTOIA 2005 s 34 of £215 455 against his professional income from Squire Sanders & Dempsey.

The deduction related to a payment to German bank BL made under an agreement with individuals who had been with HH which left debts of around €17m to several banks when it ceased to trade.

BL sued the UK partners of HH for payment. The taxpayer made an agreement to pay €300 000 to release him from all claims to the bank.

He made the payment in January 2008 – which he admitted had enabled him to avoid bankruptcy and protect his reputation. He said his purpose was...