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HMRC internal manual

Company Taxation Manual

HM Revenue & Customs
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Corporation Tax: management expenses: commencement and transitional provisions in FA04

The provisions of FA04 apply to accounting periods beginning on or after 1 April 2004.

The transitional rules at FA04/S43 (5) provide that where an accounting period straddles that date, for the purposes of calculating the correct amount of management expenses, and only for that purpose, that period shall be divided into two separate periods.

This ensures that all companies newly qualifying for relief (that is ‘companies with investment business’ which are not ‘investment companies’) will be entitled to relief for expenses referable to any period from 1 April 2004.

For a company already entitled to relief, the management expenses available for the straddling period are calculated under the old rules up to 31 March 2004 and the new rules are applied for the period that commences on 1 April 2004. The two figures are then added together (along with any sums specifically treated as management expenses of the straddling period by legislation other than that in ICTA88/S75) to arrive at the figure of management expenses available for the whole straddling period.

FA04/S43 (2) ensures that sums can be deducted as expenses of management once and once only on the change of timing basis.

FA04/S43 (4) deals with the opposite situation, where an expense may not have been allowed under the old rules because it had not been ‘disbursed’. The accounting entry may have been made in the earlier period and thus no relief would be due under the new rules either, as no accounting entry would fall to be made in an accounting period after 1 April 2004. This provision ensures that where an investment company would have been entitled to relief under the new rules had they applied to a pre-commencement period, then the amount is deductible in the first new accounting period under the new rules.

FA04/S43 (2) and (4) are not straddling period rules; they apply equally for example to a company with accounting periods ending on 31 March.

FA04/S43 (1) ensures continuity of treatment for excess management expenses carried forward under the existing provisions of Section 75 (3). They will be treated as deductible in the first new accounting period.