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HMRC internal manual

Company Taxation Manual

Corporation Tax: management expenses: company status - parent or holding companies


The parent, or holding, companies of groups can, for the most part, be divided into three broad categories:

  • those which carry on the mainstream trading activities of their group,
  • those whose income consists only of dividends, interest and rents from their subsidiaries, and
  • those whose income also includes management charges paid by their subsidiaries.

There is also, however, a small fourth category of so-called ‘hybrid’ companies which have trades other than just the provision of management services running alongside the management functions. These companies were not likely to qualify as investment companies up to 31 March 2004 because of the extent of their trading activities.

Periods from 1 April 2004

For accounting periods beginning on or after 1 April 2004 it is likely that all but the pure trading company would be ‘companies with investment business’ and eligible to claim relief for management expenses.

Periods up to 31 March 2004

For earlier accounting periods (up to 31 March 2004) companies in the first category are not investment companies. Companies in the second category are investment companies. It is difficult to decide the status of a company in the third category, because it is possible such a company could be carrying on a trade of providing management services. The expenditure it incurs could include:

  • obvious ‘parental’ costs, like the cost of the main Board and the supporting Head Office, and also
  • costs of specific functions, like accommodation and other common services, which it is more convenient and efficient to provide from the centre.

If the parent company merely charges subsidiaries their shares of costs, with no added ‘profit’ elements, then it is unlikely that the parent company is carrying on a trade of providing services.

But if the parent company provides services:

  • on a regular and organised basis,
  • for reward,

it is likely to be carrying on a trade within Case I of Schedule D. This means it may not be an investment company. The parent company may not satisfy one or both of the conditions in ICTA88/S130 because of:

  • the scale of this trade, and
  • its importance relative to its other activities.

CTIAA (Technical) will be able to help if you need advice on whether or not there is a trade in a particular case. A critical examination of all the facts will enable you to decide whether the company’s business consists wholly or mainly in the making of investments and whether the principal part of its income is derived therefrom.

An intermediate company may seem to fall into the second category. An intermediate holding company will sometimes act as a mere conduit for the dividend stream. Such a company rarely incurs expenses of its own. So the question of whether or not it is an investment company does not often arise. But if you have a case where an intermediate holding company has significant amounts of expenditure, you should examine the company’s status critically. The principal part of its income will be derived from investments. However the particular facts of the case will show whether or not its business consists wholly or mainly in the making of those investments or indeed whether it has a business at all.

As stated above some of these issues are not as relevant for periods commencing on or after 1 April 2004 when a company can claim relief for its management expenses where it has a business which consists wholly or partly in the making of investments but whether it has a business at all will still be an issue. There is guidance at CTM08180 on expenditure by an investment company that relates to the business or trades of other companies in the group.

There is guidance at CTM08180 and CTM08260 where a holding company incurs expenses in connection with a take-over bid and at CTM08200 where a holding company incurs bid defence costs.