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HMRC internal manual

Business Income Manual

Wholly and exclusively: companies: establishing a company's purpose

S54 Corporation Tax Act 2009

Established by reference to the purpose(s) of those entitled to act for the company

A company is a separate, albeit artificial, legal person. You should establish a company’s purpose by reference to the purpose of those who are entitled to act for it. Lord Reid described the position in Morgan v Tate and Lyle [1954] 35 TC 366 (see BIM35570) at page 415:

`It was agreed that, in order to determine for what purposes money was spent, it is necessary to ascertain what was in fact the purpose of the trader in spending the money. In this case the trader was a limited company, which in the eye of the law is a person distinct and different from the shareholders or any of them, and such an artificial person cannot in any real sense have a purpose. But the purpose of the body which was entitled to act and did act for the Company must be held to be the Company’s purpose.’

For companies under common control, you may need to consider if the purpose of an expense was wholly and exclusively for the trade carried on by the paying company. If two companies sharing the same directors benefit from an expense incurred by one of them, you will need to establish from the facts (rather than relying on the statements of the directors) whether the purpose was solely for the trade of the company incurring the expense. If it was not then no allowance will be due. See Upjohn J in Marshall Richards Machine Co Ltd v Jewitt [1956] 36TC511 (see BIM37790), 36TC at the foot of page 525:

‘It is normally a question of fact whether the disbursement in question is laid out wholly and exclusively and for the purposes of the trade of the parent company: or, secondly, whether it is laid out wholly and exclusively for the purposes of the trade of the subsidiary company; or, thirdly, whether it is laid out partly for the one and partly for the other. In the first case the parent company succeeds in getting an allowance; in the other two cases it does not.’

See also the case of Garforth v Tankard Carpets Ltd [1980] 53 TC 342 - a case concerning the deductibility of payments made under a guarantee given by a manufacturing company in respect of a property owning associated company (see BIM37065).