Purpose of payment

Does the partnership carry on the trade?

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

In October 2009 he claimed a deduction under ITTOIA 2005 s 34 (‘Expenses not wholly and exclusively for trade and unconnected losses’) of £215 455 against his professional income from SSD. The deduction related to a payment he had made to a German bank (BL) under an agreement made by various individuals who had been connected with Haarmann Hemmelrath. When that firm ceased to trade it left debts of €17m to several banks.

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