Jackie Wheaton answers a query on the tax treatment of legal costs of an out of court settlement.
My client company (A) is in dispute with another company (B) regarding a former employee of B who joined A and allegedly brought with him a number of B’s former clients in breach of a restrictive covenant agreement. An out of court settlement has been reached whereby A will contribute to B’s legal costs. A has incurred its own legal fees in defending the claims made by B. Are the costs allowable for corporation tax purposes on the grounds that they were incurred in protecting my client’s trade? The employee is named as a co-defendant along with my client. Are there any benefit in kind issues?
HMRC’s Business Income Manual...
