Deductibility of payment to father

The taxpayer started a business G Ltd with a colleague but he continued in full-time employment as well. He therefore provided his services to G Ltd in his personal capacity trading as DC Consult which submitted monthly invoices for payment of his service to G Ltd.

For 2014-15 DC Consult rendered invoices totalling £70 000. Included in the expenses claimed was £30 000 paid to the taxpayer’s father who was said to be ‘effectively acting as a subcontractor’ with an ‘advisory and mentoring’ role identifying possible projects and working on pricing.

HMRC did not accept that the £30 00 was ‘genuinely incurred wholly and exclusively for the purposes’ of the taxpayer’s trade. It said the sum was rather ‘an application or redistribution’ of the profits from G Ltd. It disallowed the entire amount.

The taxpayer appealed. He said HMRC had taken an ‘all or nothing approach’....