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HMRC internal manual

Company Taxation Manual

HM Revenue & Customs
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Corporation Tax: management expenses: capital exclusion - periods starting on or after 1 April 2004

ICTA88/S75 (3) now specifically provides that expenditure of a capital nature does not count as expenses of management under the general rules. This provision does not apply to capital sums that are treated as expenses of management under a provision outside Section 75, or to amounts representing capital allowances treated as expenses of management under Section 75 (7).

The capital/revenue divide applies across all heads of charge. See BIM35000 onwards for details of this issue in the Case I context.

The fact that the investments of a company with investment business are likely to be held on capital account does not create a presumption that the expenses of managing those investments are themselves capital. Ordinary recurring expenditure which otherwise satisfies the tests in Section 75 is very unlikely to be of a capital nature. For example, we would generally expect regular, ongoing costs of employment of staff in a department managing a company’s investments to be non-capital.

It is also worth noting that if expenses are debited in a statement of ‘capital’ profits and losses in financial accounts, or in a statement that combines revenue and ‘capital’ items, that does not in itself exclude them from deduction as expenses of management. Section 75A (10) covers this point.

For details of where the capital/revenue divide might fall in the context of acquisitions and disposals, see CTM08260.