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HMRC internal manual

Business Income Manual

HM Revenue & Customs
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Underwriting of shares: investment trust companies

The taxable trade profits of an investment trust company which habitually underwrites share issues may be computed by one of the methods indicated below, provided that the selected method is consistently followed:

  1. Shares which have been acquired under underwriting contracts and taken up by the company should be treated as having been acquired for the purpose of its investment trust undertaking, and the underwriting commissions relating to those shares as deductions from their purchase price, and not as taxable profits. The commissions relating to underwritten shares of which the company has been relieved by public subscription should be treated as taxable profits.
  2. All the underwriting commissions received should be brought into one account, which should also include profits and losses on realisations of shares acquired under underwriting contracts, and appropriate valuations at the beginning and end of each year of such shares as remain unsold. The profit or loss shown by the account should be taken as the profit or loss on underwriting for the year.

No objection need be offered where a company desires to adopt method (b) with the modification that shares acquired during a year under underwriting contracts and remaining in hand at the end of that year are valued for the purpose of computing the profit or loss for the year, and subsequently treated as part of the investment trust undertaking.