The taxpayer decided to dispose of a subsidiary company and incurred professional fees associated with the subsequent sale. The taxpayer claimed the fees as expenses of management of its investment business. The First-tier Tribunal concluded that the disputed expenses were expenses of management under section 1219 of the Corporation Tax Act 2009 and were not expenses of a capital nature within the exclusion in section 1219(3)(a). The Upper Tribunal upheld that decision. The revenue appealed on the question as to whether the disputed expenses were expenses of management and on a question of law as to whether they were capital in nature.
On the appeal—
Held, appeal allowed. The First-tier Tribunal was entitled to reach the conclusion that the disputed expenses were expenses of management (para 54).
Parliament intended that the phrase “expenses of a capital nature” in section 1219(3)(a) of the Corporation Tax Act 2009, which had the same meaning as “items of a capital nature” in section 53(1) of that Act, should be interpreted in accordance with the meaning which it had acquired in the case law on what was materially the same phrase in other parts of the tax code. The acquisition of an asset like a company as an investment would easily be regarded as being capital expenditure. The disposal of such an asset would equally be capital rather than revenue. That was clearly right in principle and was supported by authority. Consistent with authority, money which was expended in order to achieve a disposal of an asset or, in the present case, the disposal of a business, should also be treated as being of a capital nature, especially as the matter was to be looked at from a commercial point of view rather than by reference to legal technicalities. All of the disputed expenditure fell within the exception in section 1219(3)(a) of the Act (paras 58–66, 95–96, 104, 120, 121, 122).
David Ewart KC, James Henderson and Barbara Belgrano (instructed by HMRC Solicitor’s Office and Legal Services) for the revenue.
James Rivett KC and Ronan Magee (instructed by Pinsent Masons LLP) for the taxpayer.