Payments to partners were in reality partners’ drawings

The partners in the taxpayer owned intellectual property which it licensed to a related party to sell the developed products. The partners were described as ‘family partnerships’ each of which received income from the taxpayer decided at annual meeting for what was called ‘consultancy and design work’. These sums were reduced by claiming private expenses such as student accommodation costs.

After an enquiry HMRC issued discovery assessments on the taxpayer. This was on the basis that the expenses claimed by the partnership had not been incurred or if they had been they were not incurred wholly and exclusively for the purposes of the trade and the direct costs paid to the family partnerships were in reality drawings by the partners.

The taxpayer appealed.

The First-tier Tribunal found there was no evidence that the payments claimed as deductions were paid or that the family...