Relief for guarantee

The appellant was a director of a company and held 5% of the share capital. The company fell into financial difficulty and in September 2002 entered into a debt factoring agreement which obliged its directors to provide personal guarantees according to their shareholdings and which would be binding for four months after resignation from office.

The appellant resigned in the same month. However the company failed in December 2002 and called on the appellant's guarantee. He paid the guarantee in November 2004 and claimed a deduction under ITEPA 2003 s 336(1) in his 2004-05 tax return.

HMRC did not allow the claim. They said that the expense did not fulfil the conditions of s 336(1). It was not the duty of a director to guarantee a company's debts thus the expense was not incurred in the performance of his duties. Furthermore the guarantee also...