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HMRC internal manual

Company Taxation Manual

HM Revenue & Customs
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Corporation Tax: management expenses: unallowable purpose - activities within the charge to tax


The requirement that the activities for the purpose of which investments are held must be within the charge to CT will exclude, for example:

  • the activities of a non-resident company with a permanent establishment in the UK, to the extent they are not part of the permanent establishment’s activities; an example of this would be where the UK branch of a non-UK resident company pays expenses relating to activities that are not connected with the UK branch;
  • trading activities outside the scope of Case I of Schedule D because they are conducted on a mutual basis;
  • the provision of services and facilities to its members by a members’ club.

But the test will not be failed just because a company’s investments are such as to generate only:

  • dividends exempt from CT under ICTA88/S208, or
  • capital gains that are covered by the substantial shareholdings exemption (CG53000+), or
  • capital gains that are exempt under TCGA92/S100 (1) (authorised unit trusts, investment trusts and some other collective investment vehicles).
  • the investment is in a company which itself is not within the charge to CT, for example a subsidiary not resident in the UK.