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HMRC internal manual

Business Income Manual

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Specific deductions - trade organisations: ISO9001 accreditation

The guidance below considers, as an example, expenditure incurred to obtain a particular accreditation. There are many other accreditations on which a trader may expend money in the acquisition or attempted acquisition (for example, Investors in People). You should follow the same general approach when considering other types of accreditation.

ISO9001 is an international quality management standard created by the International Organization for Standardization and operated by a variety of national standards organisations including the British Standards Institution (BSI) in the UK.

ISO9001 establishes a registration and audit system that tells a business’ customers something about how that business is run. It is not concerned with specifications of individual products but with how services are delivered, the quality of the trader’s internal control and management systems, in short the `quality’ of the trader’s overall operations.

Costs of acquiring accreditation

Applying for certification under ISO9001 is likely to involve incurring a number of different costs on:

  • implementing tightly documented processes;
  • staff training to ensure compliance;
  • consultant fees for the individuals guiding the preparation for an audit;
  • payment to the auditors.

Benefits of registration

Certain benefits may flow from ISO9001 registration. For example, the trader will be able to display the registration logo. Reasons for registration may also include:

  • to improve customer/supplier relations, in particular by getting things right first time;
  • to improve the internal organisation and efficiency of the business;
  • to gain increased market share in existing markets and to explore new markets, at the same time retaining existing customers.

In practice, it is important to establish why the particular business under consideration obtained registration and, though literature issued by the BSI and by accredited bodies is useful, ultimately it is the traders own documentation - internal feasibility studies, minutes of Board meetings, correspondence, etc - that is most informative. If a trader only seeks registration to satisfy existing customers, the documentation may sound more impressive than the reality. It is important to relate the one to the other.

Treatment

Whether outlay registering under ISO9001 is capital or revenue turns on the nature of the role played by the asset or advantage secured (or, in the case of abortive expenditure, the asset or advantage that might have been secured) in the context of the trader’s business. Is the asset or advantage sufficiently enduring and substantial to be regarded as capital? Does it add to the profit making structure of the business or merely preserve it?

In the context of ISO9001 we consider the position to be broadly as follows.

  • In isolation, the direct benefits of working towards registration are unlikely to be capital in nature. The outlay is more likely to be capital if it is made in connection with other expenditure that alters or expands the scope of the trade rather than just seeking to increase the share of existing markets.
  • Some traders register merely to preserve an existing trading relationship, say with the local council. If nothing else has been done; if the trading operations are unaltered and the existing profit earning structure has just been maintained; the expenditure is likely to be on revenue account.
  • If, at the other extreme, a trader who has hitherto only undertaken small private contracts secures registration as part of a wider scheme to extend significantly his trading operations, say to bid for large public sector contracts, the outlay may well be capital.
  • In between, there will be a range of circumstances, in which the asset or advantage may or may not be sufficiently major to stamp the outlay capital. Two factors are likely to be of particular importance. Was the registration expenditure part of a wider reorganisation of the trader’s affairs to attract new customers? Was the outlay concerned with moving into markets previously untapped?