The First Tier Tribunal Decision in M A Raynor (deceased) and Mrs B C Raynor (TC01649) looked at the deductibility of legal costs incurred in defending criminal prosecution in connection with polluting a river with insecticide.
The business included haulage for agricultural purposes and had permission to handle hazardous waste. There was a spillage at their site from drums containing the pollutant, as a result of which 100,000 fish were killed.
Charges were brought against Mr Raynor (together with other defendants), and if he was found guilty he was facing a possible custodial sentence or, more likely, community service and a fine. Legal expenses incurred in defending the charges were claimed as a deduction for income tax purposes in the partnership computation.
The fundamental question is whether the costs were incurred wholly and exclusively for the purposes of the partnership’s trade. If the conscious motive for incurring the expenditure was not wholly for business purposes, duality of purpose will prohibit a deduction.
The Tribunal decided that there was a significant personal motivation in seeking to avoid either a custodial sentence or community service, and because there is a personal purpose the expenditure must be denied.
Reference was made to the fact that the expenditure was not broken down into separate elements on the invoices from the solicitors, but that if that had been done there may have been scope to claim a deduction for parts of the expenditure. This demonstrates the importance of setting out clearly, with suitable allocation of costs, the work involved in a complex assignment, particularly where elements may have duality of purpose.
We have previously looked at deductibility of expenses incurred in defending reputation, and our article of 1 December summarises a number of cases that are also relevant to this Tribunal decision.