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In TR, SP and SR Rogers v HMRC [2021] TC08342, the First Tier Tribunal (FTT) found that legal expenses incurred by a partnership in defending a partner against a specific criminal charge were incurred wholly and exclusively for the purpose of the partnership’s trade.

Section 34 ITTOIA 2005 denies a deduction from trading profits where expenses are not incurred wholly and exclusively for the purposes of the trade.

HMRC contended that the legal expenses incurred by the partnership had an intrinsic duality of purpose as there were three underlying motives:

The FTT found in favour of the partnership, agreeing that the legal expenses were incurred wholly and exclusively for the purposes of the trade:

Although the successful Court of Appeal decision had a positive impact on the personal reputation of Mr Rogers, this was an effect of, rather than a reason for, the expenditure being incurred.

The purpose of the expenditure was to protect the business: it was wholly and exclusively incurred for the purposes of the trade.

Useful guides on this topic

Wholly and exclusively…toolkit
What does 'wholly and exclusively' mean? How do you determine if a cost is wholly and exclusively incurred for the purpose of a trade? What cases are there? 

Legal fees in personal defence
There are two contrasting cases on whether legal fees incurred in cases that affected both personal and business reputation are 'wholly or exclusively'  for the purposes of the business.

How to appeal an HMRC decision
Disagree with a HMRC decision? How to appeal, what type of decision can you appeal and what are your different options when you disagree with HMRC? What are the key steps in making an appeal?

When does a partnership exist?
When does a partnership exist? Why does it matter? What are the implications for different taxes?

Partnerships: How to prepare partnership and partners tax returns
How to prepare partnership returns. How are partnership profits calculated? How are corporate members of partnerships taxed? What are the differences between the tax treatment of individual and corporate partners? Are there anti-avoidance provisions to consider?

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TR, SP and SR Rogers v HMRC [2021] TC08342


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