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HMRC internal manual

Business Income Manual

HM Revenue & Customs
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Capital/revenue divide: intangible assets: costs of incorporating a new company

As explained in BIM35525 expenditure in connection with the acquisition, alteration, enhancement or defence of the fundamental structure of a business is generally capital. The cost of creating a new company is also capital notwithstanding that such creation is for the purposes of the trade of an existing company.

In the case of J B Kealy v O’Mara (Limerick) Ltd (Irish Tax Reports 642) the shareholders of three companies set up a holding company which acquired the shares of the three companies in exchange for its own shares. The High Court in Ireland held that the costs of incorporating a new parent company were capital in nature; a radical and permanent change in the business organisation of the three companies had taken place. The transformation had altered the structure and destroyed the independence of the three companies. Something enduring had come into existence, which would affect the future working of all three companies. Irish tax cases are no binding authority on UK appellate bodies. UK judges have however quoted this case and there is no reason to believe that a different decision would result if the case had come before a UK court.

If you need a copy of the decision it can be obtained from CTISA (Technical).