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HMRC internal manual

Business Income Manual

Deductions: general: prohibitive rules

The following table summarises the general prohibitions and restrictions on deductions in computing trade profits and indicates where more detailed guidance may be found. These prohibitions are, however, subject to the priority rules at BIM42080.

Income Tax (Trading and Other Income) Act 2005 section Corporation Tax Act 2009 section Prohibition or restriction Further guidance
       
33 53 No deduction of items of a capital nature. BIM35000 onwards
34(1)(a) 54(1)(a) No deduction for expenses not incurred wholly and exclusively for the purposes of the trade. BIM42100 onwards
34(1)(b) 54(1)(b) No deduction for losses not connected with or arising out of the trade.  
35 55 No deduction for any debts except:  
i. bad debts; and  

  
ii. a debt (or part) released by a creditor wholly and exclusively for the purposes of the trade as part of a statutory insolvency arrangement; and  

  
iii. a doubtful debt to the extent that it is estimated to be bad.  
For Corporation Tax, this rule applies only to non-money debts (as money debts fall within the loan relationship regime). BIM42700 onwards      
  36 1288 No deduction for employees’ remuneration charged in the accounts for a period of account but not paid within nine months of the end of the period. (A deduction is allowed, however, when the remuneration is paid.) BIM47130 onwards
  38-44 1290-1297 No deduction for employee benefit contributions unless benefits are provided etc within nine months of the end of the period of account. (A deduction is allowed, however, when the benefit is provided.) BIM44500
  45-47 1298-1300 No deduction for certain business entertainment and gifts. BIM45000 onwards
  48-50B 56-58B Restricted deduction for hire charges paid for certain motor cars. BIM47780 onwards
  59 No deduction for any royalty or other sum paid for the use of a patent. This rule applies to Corporation Tax only but for most patent royalties it is overridden by the rules of the intangible fixed assets regime (see CIRD10000 onwards). BIM45965
  52 No deduction for interest for which relief is given under certain other provisions. This rule applies to Income Tax only. Interest paid by companies is dealt with under the loan relationships regime (see CFM30000 onwards). BIM45765
  53 1302 No deduction for National Insurance contributions other than employers’ Class 1, Class 1A and Class 1B contributions. BIM42523
  54 1303 No deduction for any specified tax penalty, interest or VAT surcharge.  
  55 1304 No deduction of expenditure the making of which is a criminal offence or which is induced by blackmail. BIM43100 onwards
  55A 60 No deduction for certain expenditure on an integral feature of a building or structure. CA22300 onwards
  55B 60A Restriction on the deduction of a rental rebate payable under a plant or machinery lease.  
  1301A For Corporation Tax, no deduction is allowed for interest otherwise than under the loan relationship regime. CFM30000 onwards
  1301B For Corporation Tax, no deduction is allowed for qualifying charitable donations under the Gift Aid scheme (relief being given by deduction from the company’s total profits).