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HMRC internal manual

Company Taxation Manual

HM Revenue & Customs
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Corporation Tax: management expenses: excess expenses and excess charges

ICTA88/S75 (3) & ICTA88/S242

Carry forward

Excess management expenses are to be carried forward and treated as management expenses of the next accounting period under both the pre and post FA04 legislation. Any excess charges paid for the purposes of the company’s business will also be carried forward and treated as management expenses of the next accounting period. For periods up to 31 March 2004, however, only charges paid wholly and exclusively for the purposes of the business can be carried forward.

There is no statutory mechanism for determining the amount of excess management expenses carried forward for pre-CTSA periods. Whilst it is sensible to address any concerns at the time the accounts giving rise to the excess management expenses are submitted, any dispute about an excess amount available from a previous accounting period can only be resolved by determining the chargeable profits (or claim for payment of tax credit where ICTA88/S242 set off is claimed) for the accounting period in which the excess would be effective.

For CTSA periods the provisions of FA98/SCH18/PARA88 apply and the amount of excess management expenses to be carried forward is determined either by the return or at the conclusion of an enquiry.

ICTA88/S242 claims

For accounting periods beginning before 2 July 1997, (F2A97/S20 (1)), a company can claim under ICTA88/S242 to treat a surplus of franked investment income over franked payments as if it is profits chargeable to CT. Management expenses can be set off against such profits and such a set-off generates a payment of tax credits. There is guidance on claims under ICTA88/S242 at CTM16200 onwards.

A company can extend a claim under Section 242 to management expenses brought forward. For the purposes of the time limit in Section 242 (8)(b) these expenses are treated as incurred in the accounting period to which they are carried forward. There is guidance on the time limits for claims under Section 242 at CTM16220.

Group relief

Under ICTA88/S403 (4) and (5), an investment company or ‘company with investment business’ (from 1 April 2004), but not a life assurance company, can surrender as group relief an excess of management expenses over its profits for the accounting period. The management expenses must be those actually disbursed for then accounting period (for periods up to 31 March 2004) or referable to the accounting period (for periods starting on or after 1 April 2004). So management expenses brought forward and treated as disbursed for/referable to that accounting period should be excluded.

To calculate the excess management expenses:

  • take the profits of the accounting period, without any deduction for losses or other allowances of any other accounting period, and
  • deduct from this the management expenses actually disbursed for/referable to that accounting period.

For an example of how to make the calculation, see CTM80445.