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HMRC internal manual

Business Income Manual

Specific deductions: professional fees: take-over bids

There is detailed guidance on the tax treatment of costs associated with take-overs at BIM38260 onwards. This page examines the deductibility of professional fees incurred in relation to corporate take-overs.

A company may avail itself of a number of different types of professional and financial services (whether bought in or undertaken by the company’s own staff) in the course of making or defending a take-over bid. The costs may be charged under a number of different heads in the accounts. For example:

  • profit forecasts will be put together in consultation with merchant banks and accountants, usually the company’s own auditors
  • merchant bankers and stockbrokers may also earn very substantial fees from giving general advice and on such matters as researching the track record and financial soundness of the purchaser
  • specialised legal advice will also be needed because the regulations governing conduct during a bid are complex and as attempts may be made to have a bid referred to the Competition Commission
  • an advertising campaign may be launched to maintain the loyalty of small shareholders
  • costs (for example, paid to public relations consultants) will also be incurred in briefing individually major institutional investors
  • the costs of printing and distributing defence documents will themselves be substantial

Even where bid defence costs are identified separately in the annual report it is still worth considering whether everything has been included.

You should critically examine claims that the costs are deductible in the light of the legal principles at BIM42100 onwards (trading companies) and CTM08200 (investment companies).

You will need to undertake detailed and comprehensive fact gathering. The application of the legal principles to the particular facts can be complex.