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HMRC internal manual

Partnership Manual

Calculating the taxable profits: partner recruitment costs

Costs incurred by a partnership on recruiting new partners, either as additional or replacement partners, is normally allowable as revenue expenditure. In most cases, the firm is paying to recruit a fee earner who will generate profits for the firm. However, there are some circumstances in which the costs may be viewed as capital expenditure for tax purposes and will not be allowable as a revenue deduction. This will only be the case where there is a significant additional factor relevant to the recruitment of the partner. Factors to consider include:

  • Whether the admission of the partner has a fundamental impact on the structure of the firm’s business involving more than a mere expansion of the business.
  • Whether the partner is recruited as part of the acquisition of a business.
  • Whether the new partner’s capital contribution is a material factor in the recruitment.

Where such factors are present, whether or not the costs of recruitment are capital expenditure will be a question of fact and degree.