In Kevin Mulloy v HMRC [2016] TC05019 a sole trader tried and failed to obtain CGT relief on costs previously claimed as deductions in his trading accounts together with the cost of loss of his personal investment in the business and a payment to his ex-wife.

  • Mr Mulloy sold his business and claimed CGT relief on a high level of costs and losses.
  • HMRC enquired into his tax return and disallowed the costs.
  • The taxpayer appealed to the first tier tribunal (FTT).

Loss on his 'investment'

The taxpayer’s argued that he was a long term creditor or investor in his business and that some of that lost debt / investment should be allowed as a deduction from disposal proceeds.

The FTT found that:

  • As the business was a sole trade the taxpayer could not legally be owed anything by the business. Any attempt to claim a deduction for the value of the taxpayer’s ‘lost’ investment was therefore “misconceived and doomed to fail”.
  • The same argument would apply if the taxpayer had attempted to structure the sale and purchase agreement to allocate consideration to repaying their investment (rather than to goodwill).

Deduction for expenses previously claimed as revenue deductions

The taxpayer claimed CGT relief for certain items of a capital nature that had also been claimed in his accounts. 

The FTT found that:

  • The use of the word ‘allowable’ in s39 TCGA 1992 rather than ‘allowed’ means that, in principle, sums wrongly claimed as revenue deductions are not precluded from being deducted in calculating a capital gain.
  • This may of course lead to a reappraisal of trading profit or loss in past years, but given the level of losses in the current case this was not an issue and the costs were not allowable for CGT.

Payment to ex-wife

Finally, the Tribunal rejected the taxpayer’s argument that his disposal proceeds should be reduced by the amount paid over to his wife:

  • The payment amounted to a redirection of the funds received by the taxpayer rather than a payment to his wife for her share of the business.
  • There was no evidence to show that the taxpayer owned a part share in the business as a nominee or trustee for his wife.  Further, the payment could not be held to be an incidental expense of disposal.

The appeal was therefore dismissed.

The taxpayer put in a lot of work, his bundle was over 400 pages long. With hindsight, if there had been a means of an independent review stage of a case like this prior to the hearing, perhaps the taxpayer could then have been persuaded to back down. An issue remains in these long disputes and this is that when HMRC is asked to make a case review the reviewer is not independent to HMRC and so is not trusted by the taxpayer. 


Case: Kevin Mulloy v HMRC [2016] TC05019