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HMRC internal manual

Business Income Manual

HM Revenue & Customs
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Wholly and exclusively: duality of, or non-trade, purpose: loans/advances to others: architect buying shares in client companies

S34 Income Tax (Trading and Other Income) Act 2005

Professional investing in customers to secure business

For companies chargeable to Corporation Tax, the tax treatment of loans and advances is now governed exclusively by the loan relationships regime in Parts 5 and 6 Corporation Tax Act 2009. Detailed guidance is at CFM30000. The guidance below only applies to other categories of taxpayer.

In addition to the question of whether the loan or advance was made wholly and exclusively for the purpose of the claimant’s trade you should also bear in mind that the expenditure may be ruled out because it is capital.

In the case of Stott v Hoddinott [1916] 7 TC 85, the taxpayer was an architect conducting a practice based in Oldham in Lancashire. Although not making direct loans, the taxpayer claimed that he had to assist the companies to whom he provided his professional services. He did this by buying shares in the companies. When the shares were realised (in part to fund share purchases in similar circumstances) he realised a loss, which he claimed as an allowable expense of his profession.

The Commissioners found that Mr Stott was not a dealer in shares and that it was not a part of his profession to deal in shares and that the losses on sales by him of shares so taken up by him were a loss on capital.

Atkin J reminds us that what you have to do is to ascertain (in accordance with normal accountancy principles except in so far as overridden by statute) the profits for the year. In relation to the profession of architect the purchase of shares in a customer represented an investment of capital. In order to secure work, Stott was obliged to make such investments but that did not prevent the investments from being just that, investments.