Legal fees

Legal fees

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we have a client who was formally a member of a professional and who was struck off for, shall we say, being a bit naughty!

they had a variety of personal circumstances at the time, marriage breakdown, money problems etc which contributed to this naughtiness

if their wisdom they decided to fight the striking off action and incurred huge costs!

question is are the legal fees associated to challenging the striking off action an allowable costs for tax purposes?

thanks in advance

Replies (5)

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By Ding Dong
26th Jan 2013 10:11

can they trade without their "license"

i.e. are they (say) a Barrister who cannot trade without their letters or are they in a profession where they could trade without (e.g. an accountant)

Reason I ask is that if the legal fees are to do with trading or continuation to trade it may be allowable - I will try and dig out the notes/sections on this and come back later on

EDIT - did he break the law? If yes definitely not allowable. If no (i.e. just boke his professional body's guidelines - then possibly allowable)

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By George Attazder
26th Jan 2013 10:26

Employed or Self-Employed?

Do you do it just to P me off? Once again you haven't given sufficient information for the question to be answered.

If he's employed, then no chance.

If he's self-employed, what was his purpose in incurring the expenditure? See BIM37965.

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By Ding Dong
26th Jan 2013 10:49

Interesting case - Thanks George

will keep a reference to that for when I get booted out of the ACCA for wearing a mankini!

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David Winch
By David Winch
26th Jan 2013 11:01

Recent case

You might like to look at McLaren Racing Ltd v Revenue & Customs [2012] UKFTT 601 (TC) from last year - although the decision is on a rather different point, was somewhat exceptional and may be subject to appeal.

In that case a penalty of £32m imposed by a 'trade' body (and not by statute) was held to be an allowable expense for tax purposes.

The logic of the decision was:

"This cost was not one imposed on McLaren, but one which it was contractually obliged to pay under contractual obligations undertaken for the purposes of its trade; it did not result from the action of an external regulator, but from a body to whose dictates it had agreed to submit as part of its trade and in order to gain income; it arose from the action of employees in pursuing a course of conduct normally for the benefit of its trade, not from actions unconnected with its trade; the penalty was motivated by commercial policy and was structured by reference to McLaren’s trade; the body imposing the penalty had commercial considerations more than the public interest in view; the protection of fairness in motor sport organised by FIA does not carry the same sort of public interest as that protected by a regulator of a profession based on trust. The penalty was something which arose from its trade, was connected with its trade and was incurred wholly and exclusively for the purposes of its trade".

David

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By George Attazder
26th Jan 2013 11:03

McLaren

I'd understood that HMRC were appealling, but I might be wrong.

It's certainly potentially a rogue decision.  The two tribunal members disagreed on the point and the tribunal chairman's view, therefore, prevailed.

The prevailing view was based on the perspective that there was a contractual relationship between McLaren and the FIA and the "fine" was a penalty for breach of contract.

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