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HMRC internal manual

Company Taxation Manual

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Corporation Tax: management expenses: targeted anti-avoidance provision - introduction and commencement

The FA04 changes to Section 75 contained an unallowable purpose rule but did not mention tax avoidance. FA07/S28 introduces a targeted anti -avoidance rule (TAAR) to Section 75 in response to schemes which seek to create or increase relief in artificial/contrived circumstances. This TAAR can be found at ICTA88/S75(2A).

The provision will deny relief for expenses where the expenses are incurred as part of a tax avoidance scheme, where arrangements produce a contrived deduction or tax advantage or where any genuine expenses of management are artificially increased. It is likely to affect very few companies and transactions, only those knowingly and deliberately entering into arrangements (CTM 08236) to avoid tax.

For details of how the provision applies to expenses which are treated as or deemed to be expenses of management by other provisions of the Taxes Acts see CTM08239.

Commencement

The rule applies to expenditure paid on or after 20 June 2007 (FA07/S28(5)). It is HMRC’s view that expenditure incurred before that date as part of an avoidance scheme may be ineligible for relief under current case law and the relevant legislation.

The commencement provisions are to be found in FA07/S28(5) and (6). The amendments to ICTA88/S75 apply to all accounting periods beginning on or after 20 June 2007.

However where a company has an accounting period which straddles that date, then, for the purpose of determining any expenses to which S75(2A) may apply, the accounting period is treated as two separate accounting periods. ICTA88/S75(2A) will apply to the separate accounting period which starts on 20 June 2007.

The effect of FA07/S28(5) is that any expense paid before 20 June 2007 will not be subject to the TAAR even where the timing rules of ICTA88/S75A would make it referable to an accounting period commencing on or after 20 June 2007. It could of course still be ineligible for relief because of established case law principles and the remainder of the S75 rules.