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HMRC internal manual

Company Taxation Manual

Corporation Tax: management expenses: wholly and exclusively

There is no wholly and exclusively requirement in CTA09/S1219 and indeed this was confirmed in the case of L G Berry Investments Ltd v Attwooll. The statutory criterion to be applied is whether an expense is an expense of managing the investment business.

L G Berry Investments Ltd v Attwooll 41TC547

The point at issue was whether the company could claim relief for directors’ fees as management expenses.

The company carried on the business of advancing money on mortgage to house purchasers. The company claimed directors’ fees as an expense of management. The Special Commissioners held that the amount of directors’ fees was not necessarily an expense of management. However the Special Commissioners allowed the part of the fees they decided was reasonably related to the duties performed by the directors. The court held that the Special Commissioners’ decision was correct, and that there was clear evidence to support their decision.

In the calculation of trading profits, you disallow expenditure under CTA09/S54(1)(a) if it is not incurred ‘wholly and exclusively’ for the purposes of the trade. But there is no similar prohibition in CTA09/S1219 for expenses of management.

In L G Berry Investments Ltd v Attwooll 41TC547 the company argued that the directors’ fees, which were substantially the excess of its gross income over other expenses, were an expense of management. Plowman J rejected the company’s argument. But he did not apply a ‘wholly and exclusively’ test like Lawrence J in Copeman v William Flood & Sons Ltd 24TC53. Indeed Plowman said (at page 554) I agree that the wholly and exclusively… test is not a test which finds itself in [the] Section…; but I think that there is an analogy between Copeman v Flood and the present case to this extent, that in the present case the Special Commissioners were also concerned with the question whether directors’ remuneration satisfied a statutory criterion, though a different one, the criterion in this case being expenses of management and not whether the sums in question had been wholly and exclusively laid out for the purposes of the Company’s trade.

But Plowman J also made the point that the object of ITA52/S425 (the predecessor of Section 1219) was:

  • not to give an investment company an advantage over a trading company, but
  • simply to prevent it being at a disadvantage.

This view did not find favour in the case of Camas PLC v Atkinson (TL3728, see CTM08190). The test is whether the expense is an expense of managing the investment business.

Having said that if an expense incurred by a trading company is disallowable on Case I principles, then it is unlikely to qualify as an expense of management.