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HMRC internal manual

Business Income Manual

Specific deductions: professional fees: capital structure of business

Fees connected with the capital structure of the business are likely to be capital. Fees incurred in connection with the acquisition, alteration, enhancement or defence of the fundamental structure of a business are generally capital. For instance, fees incurred as part of the following work are likely to be capital:

  • forming, renewing, varying or dissolving a partnership
  • negotiating a merger between companies or partnerships
  • forming and registering a company, including changing a company’s status (e.g. from limited to unlimited status or to a PLC)
  • defending against a petition by shareholders to wind up a company

You should critically examine claims that significant amounts of fees incurred on the structure or status of a company are revenue in character.

As well as being revenue in character, the fees would also have to pass the ‘wholly and exclusively’ test (see BIM42100 onwards) in order to be deductible. In particular, fees connected with the capital structure of a partnership are invariably excluded by this test. See C Connelly & Co v Wilbey [1992] 65 TC 208 (which is discussed in BIM35525) and MacKinlay v Arthur Young McLelland Moores & Co [1989] 62 TC 704 (which is discussed in BIM38120).

Share register and valuations required under company law

For expenses incurred by companies on keeping share registers, printing annual accounts, holding shareholders’ annual general meetings, Stock Exchange quotations etc, see BIM42510. For valuations made for the purposes of the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, SI 2008/410, Schedule 7 Paragraph 2, see BIM42540.