Legal expenses to defend a partner against a criminal charge

Mr S Rogers and his parents ran a scrap metal business in partnership.

As a result of a police operation criminal charges were brought against Mr S Rogers Mr T Rogers and several employees. Mr T Rogers was found not guilty at the first trial. Mr S Rogers was found guilty of one count of attempting to conceal disguise or convert criminal property but successfully appealed the conviction at the Court of Appeal.

The partnership claimed the legal costs defending the charges brought against T Rogers and S Rogers as a deduction in the partnership accounts.

HMRC disallowed the claim on the basis that they were not incurred wholly and exclusively for the purposes of the partnership’s trade (ITTOIA 2005 s 34).

The partnership appealed.

HMRC said the legal expenses had an ‘intrinsic duality’ – the prevention of a prison sentence defence of personal reputation and for the...