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HMRC internal manual

Company Taxation Manual

Corporation Tax: management expenses: timing of relief - periods from 1 April 2004


FA04 has changed the timing of relief for expenses of management. Rather than the ‘disbursed’ rule, expenses are eligible for relief in the periods to which they are referable. The period to which an expense is referable is defined in the new ICTA88/S75A.

This new timing rule is a substantial change from the previous position and now means that, provided that the expense would otherwise qualify, relief as expenses of management will be available for provisions. Previously relief could only be given for expenditure that had been disbursed (CTM08550).

The change from the disbursed (paid) basis for relief has also meant the introduction of a rule reversing a deduction where, for example, a provision is reversed. In some instances the new rules will create a Case VI charge. Further details on these rules are in CTM08570.

Broadly, the timing rule follows the accountancy treatment, so that the expenses are deductible in the accounting period in which they are debited (defined at Section 75A (10)) in a company’s accounts, provided that those accounts are drawn up in accordance with GAAP, (ICTA88/S836A and from 1 January 2005 FA04/S50, also see BIM31020 onwards). This rule is subject to any specific statutory timing rules for particular types of expenditure, e.g. FA89/S44.

Where the company’s accounts for a period of account coincide with an accounting period, then expenses debited in those accounts are referable to that accounting period.

Where a period of account does not coincide with an accounting period, for example where the company draws up accounts for a period of account of more than 12 months, then ICTA88/S75A (3) and (4) apply. In such a case the expenses are apportioned between the periods on a time apportionment basis unless that would give an unreasonable or unjust result, in which case a just and reasonable method is to be used (ICTA88/S75A (5)).

Expenses may have been brought into account for a period of account but the accounts may not be drawn up in accordance with GAAP, for example in the case of a company established in a country where GAAP is not applied. In these circumstances the expenses of management are referable to an accounting period to the extent that they would have been referable to that period if the accounts had been drawn up in accordance with GAAP.

Where there is an accounting period but no accounts are drawn up for the company then the amounts referable to that accounting period are those that would have been referable, assuming a period of account coinciding with the accounting period, and the expenses would have been allowed in those accounts in accordance with GAAP if accounts had been drawn up.