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HMRC internal manual

Company Taxation Manual

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

The FA04 legislative changes contained an unallowable purpose rule but did not mention tax avoidance. FA07 introduced a targeted anti -avoidance rule (TAAR) in response to schemes which seek to create or increase relief in artificial/contrived circumstances. This TAAR can now be found at CTA09/S1248.

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. 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  provisions 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 S1248 may apply, the accounting period is treated as two separate accounting periods. Section 1248 will apply to the separate accounting period which starts on 20 June 2007.

The effect is that any expense paid before 20 June 2007 will not be subject to the TAAR even where the timing rules of CTA09/S1224 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 S1219 rules.