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Chapter BIM35590

Document Cited authorities 1 Cited in Related
Vincent
Published date22 November 2013
Record NumberBIM35590

The costs of hiring or firing employees in the normal course of business are likely to be on revenue account. In particular the costs of dismissing an unsatisfactory employee in the year of unsatisfactory performance and where there are no share transactions will be allowable.

In the case of Mitchell v B W Noble Ltd [1927] 11TC372 the original directors were appointed for life, subject to holding a qualifying number of shares. A director was subject to dismissal forthwith for neglect or misconduct towards the company. A director so dismissed was only entitled to his salary then due and could be required to sell his shares at par to the other directors. Circumstances arose in which the company may possibly have been justified in dismissing one of its directors, but, to avoid publicity that would be damaging to the company’s reputation it entered into negotiations resulting in the director agreeing to retire, the other directors buying his shares at par (they were worth considerably more) and the company paying £19,200 compensation, payable in five annual instalments.

At page 415 Rowlatt J distinguished the decision in Atherton v British Insulated Helsby Cables Ltd [1925] 10TC155 (see BIM35010) and said that the payment was not made to buy an asset or to purchase an enduring advantage; it was more like a payment made to remove a recurring disadvantage. Rowlatt explained that the costs of getting rid of an unsatisfactory employee in the year where the unsatisfactory performance arose are incurred on revenue account:

‘This gentleman being there as an...

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