The following Corporation Tax guidance note by Tolley in association with Jackie Barker of Wells Associates provides comprehensive and up to date tax information covering:
This note provides an overview of the relief that is available in respect of the management expenses of a company’s investment business. The guidance will focus on the provisions as they apply since 1 April 2004. Before that date, management expenses could only be claimed by UK-resident companies, and only by investment companies, ie not by companies with investment business.
A deduction will be available against the company’s total profits in an accounting period for the management expenses that relate to that period. However, where investments are held for an unallowable purpose, no deduction will be available. This is considered further below.
Any expenses which are deductible against the company’s profits under the normal rules are not treated as management expenses. For example, if the business is a rental business, any expenses that are directly attributable to that activity will not be included as management expenses.
Expenses of a capital nature, such as those incurred in connection with the acquisition or disposal of investments, are not deductible as management expenses unless they fall within any of the expenses included in CTA 2009, s 1221.
Prior to 1 April 2004, expenses of a capital nature were not excluded from deduction. Further information regarding this position can be found in CTM08240.
Any expenses that relate to interest on loans used to fund the investment are relieved as a debit on a non-trading loan in the normal way and not as management expenses. Please refer to the Taxation of loan relationships guidance note for further details.
There is no statutory requirement for the management expenses to be ‘wholly and exclusively’ unlike the requirement for general trading deductions. However, if the expenses are excessive in comparison to the level of expenses that may be considered necessary in managing the investments, they may be disallowed. This ensures that there is not an advantage for a company that qualifies under these provisions over a general trading company.
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