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HMRC internal manual

Company Taxation Manual

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HM Revenue & Customs
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Corporation Tax: management expenses: order of set-off

It was possible, but rare, for a company to be an investment company within ICTA88/S130 and to carry on a trade under the legislation that applied up to 31 March 2004. This is much more likely from 1 April 2004 following the relaxation of the ICTA88/S130 requirements, (CTM08060). So a company may be entitled to management expenses under ICTA88/S75, and have trading losses available for relief under ICTA88/S393A.

Trading losses

Management expensesunder Section 75 must be deducted before any losses under Section 393A can be set off. This is because:

  • the deduction of management expenses is mandatory in the computation of the total profits (CTM08580),

but

  • the company may make a claim for the set-off of trade losses against those profits.

Charges

ICTA88/S338 provides for the deduction of ‘charges on income’ paid in an accounting period from the total profits for the period, which are reduced:

  • by any other relief from tax,
  • but not by group relief.

There is guidance on charges on income at CTM09000 onwards.

Management expensesunder ICTA88/S75 must be deducted before any charges on income under Section 338 are deducted. This is because the deduction of management expenses is mandatory in the computation of the total profits (CTM08580).

For accounting periods ending before 17 March 1987 there was an order of priority between income and chargeable gains for the deduction of management expenses. If details are required they can be obtained from CTIAA (Technical). There is guidance at CTM20100 onwards on the order of priority for the set-off of ACT. There is guidance at CTM03500 onwards on the order of priority in the computation of profits to which small companies rate or marginal relief applies.