D7.307 Allowable and unallowable expenses

Corporate tax
Corporate tax | Commentary

D7.307 Allowable and unallowable expenses

Corporate tax | Commentary

D7.307 Allowable and unallowable expenses

The general rule is that management expenses are deductible if they are 'referable' to the relevant period1. In general, any such expenses are deducted in priority to other expenses2. However this general rule is disapplied, from 1 April 2017, in the case of a company with investment business that has UK property business losses carried forward that can be treated as expenses of management in the later period (B6.203)3.

However, in addition to this rule certain expenditure is deemed unallowable in any case (eg certain capital expenses; expenses that are otherwise deductible for tax purposes etc)4.

Unallowable purpose

Management expenses do not include expenses so far as they relate to investments held for an unallowable purpose during an accounting period to which the expenses are referable (see D7.305)5. An unallowable purpose is one which is not a business or other commercial purpose of the company or is for the purpose of activities not chargeable to corporation tax6. Investments held directly or indirectly in connection with, or in consequence of, arrangements to secure a deduction or tax advantage are specifically excluded from being for a business or other commercial purpose7.

Quite apart from the anti-avoidance strictures, this would exclude expenses related to:


    (a)     investments held for social or recreational purposes


    (b)     activities of a non-resident company which are not part of the activities of its UK permanent establishment


    (c)     trades undertaken on a mutual

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