Law Report: No Tax Rule against Anticipated Losses Friday Law Report: 19 February 1999; Herbert Smith (a Firm) V Honour (HMIT) Chancery Division (Mr Justice Lloyd) 12 February 1999
Kate O'Hanlon, The Independent (London, England)
THERE WAS no rule of tax law against anticipation of liabilities, and accordingly a provision in a firm's accounts, made according to generally accepted principles of commercial accounting, for expected losses on leases which could not be terminated and which could only be sublet at a rent lower than that payable under the firm's own leases, was legitimate in the assessment of the firm's income for tax purposes.
The taxpayer's appeal against the decision of the Special Commissioners that it was not entitled to make provision for anticipated losses was allowed.
The taxpayer was a firm of solicitors, which decided to move from four leasehold offices to a single office. In relation to two of the four offices, it was able to put an end to its continuing obligations for rent. The other two leases, however, were at rents which were then well above the market level, and were not capable of being terminated. The firm was thus left with two leases which it would only be able to sublet, if at all, for a lower rent than it had to pay under its own leases. The firm's accounts were audited in accordance with the principles that would apply if it were a company, so as to show a true and fair view both of the partnership at the balance sheet date, and of the partnership's profits and source and application of funds for the year. In its accounts for the 12-month period to 30 April 1990 a provision was made for the expected loss on the two leases, in one case for the remainder of the lease and in the other until 1998, which was the date of a rent review. The Inland Revenue contended that although that was the proper approach as a matter of generally accepted principles of commercial accounting, and a fair approach as between the firm's partners, to make provision for future rent liability nevertheless anticipated losses in a way which was not legitimate in the assessment of the firm's income for tax purposes. Edward Walker-Arnott, solicitor advocate (of …
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Publication information: Article title: Law Report: No Tax Rule against Anticipated Losses Friday Law Report: 19 February 1999; Herbert Smith (a Firm) V Honour (HMIT) Chancery Division (Mr Justice Lloyd) 12 February 1999. Contributors: Kate O'Hanlon - Author. Newspaper title: The Independent (London, England). Publication date: February 19, 1999. Page number: 7. © 2009 The Independent - London. Provided by ProQuest LLC. All Rights Reserved.
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