Beneficial payment

Nature of payment by a company to a third party

W was a director and 100% shareholder of N Ltd. The company made a goodwill payment of £75 000 to HSBC to release a trading covenant. A deed of settlement and release between HSBC and the taxpayer showed that the payment had been made to release him from a guarantee and legal mortgages over two properties he owned personally. The mortgages and guarantee related to debts of SA Ltd a company of which W had been a director and 50% shareholder before forming N Ltd.

N Ltd claimed the payment should be allowed as a trading deduction as a loan relationship under CTA 2009 s 307. HMRC disagreed saying the payment was made by N Ltd to satisfy W’s pecuniary liability and should be treated as earnings under ITEPA 2003 s 62(2)(b).

The taxpayers appealed.

The First-tier...