Corporation Tax Act 2009

Chapter 2 U.K. Management expenses

Modifications etc. (not altering text)

C1 Pt. 16 Ch. 2 modified by 2010 c. 4, s. 676AJ(2) (as inserted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 75)

Relief for expenses of management U.K.

1219 Expenses of management of a company's investment business U.K.

[F1 (1) In calculating the corporation tax to which a company with investment business is liable for an accounting period, expenses of management of the company's investment business which are referable to that period are allowed as a deduction from the company's total profits.

(1A) A deduction under subsection (1) is to be made before any other deduction at Step 2 in section 4(2) of CTA 2010 (deductions from total profits).]

(2) For the purposes of this section expenses of management are expenses of management of a company's investment business so far as—

(a) they are in respect of so much of the company's investment business as consists of making investments, and

(b) the investments concerned are not held for an unallowable purpose during the accounting period to which the expenses are referable.

(3) But—

(a) no deduction is allowed under this section for expenses of a capital nature, and

(b) no deduction is allowed under this section for expenses so far as they are otherwise deductible from total profits, or in calculating any component of total profits.

There is an exception to paragraph (a) in section 1221(1).

(4) Any apportionment needed for the purposes of subsection (2) must be made on a just and reasonable basis.

(5) The amount deductible under subsection (1) may be reduced under section 1222.

Textual Amendments

F1 S. 1219(1)(1A) substituted for s. 1219(1) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 683 (with Sch. 2)

Modifications etc. (not altering text)

C2 S. 1219 restricted (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), ss. 303, 1184(1) (with Sch. 2)

C3 S. 1219(1) excluded (with effect in accordance with Sch. 18 para. 63 of the amending Act) by Finance Act 2016 (c. 24), Sch. 18 para. 20(9)

C4 S. 1219(1A) excluded by 2010 c. 4, s. 63(7) (as inserted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 14(4))

1220 Meaning of “unallowable purpose” U.K.

(1) For the purposes of section 1219, investments are held for an unallowable purpose during an accounting period so far as they are held during the period—

(a) for a purpose that is not a business or other commercial purpose of the company, or

(b) for the purpose of activities in respect of which the company is not within the charge to corporation tax.

(2) For the purposes of subsection (1)(a) investments are not held for a business or other commercial purpose if they are held directly or indirectly in consequence of, or otherwise in connection with, any arrangements for securing a tax advantage.

(3) In subsection (2) “arrangements for securing a tax advantage” means arrangements the main purpose, or one of the main purposes, of which is to secure—

(a) the allowance of a deduction (or increased deduction) under section 1219, or

(b) any other tax advantage.

(4) Any apportionment needed for the purposes of subsection (1) must be made on a just and reasonable basis.

(5) In this section—

(a) “arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable), and

(b) “tax advantage” has the meaning given by [F2 section 1139 of CTA 2010].

Textual Amendments

F2 Words in s. 1220(5)(b) substituted (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 684 (with Sch. 2)

1221 Amounts treated as expenses of management U.K.

(1) Section 1219(3)(a) (no deduction allowed for expenses of a capital nature) does not apply to amounts that are treated as expenses of management under—

(a) Chapter 3 (amounts treated as expenses of management),

(b) section 985(3) (share incentive plans: how relief is given),

(c) section 999(4) (deduction for costs of setting up SAYE option scheme or CSOP scheme),

(d) section 1000(3) (deduction for costs of setting up employee share ownership trust),

(e) section 1013(3) (employee share acquisitions: relief if shares acquired by employee or other person),

(f) section 1021(3) (employee share acquisitions: relief if employee or other person acquires option to obtain shares),

F3 (g) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(h) section 196 of FA 2004 (employers' contributions to pension schemes), or

[F4 (i) section 814C(5) of CTA 2010 (treatment of payer of manufactured dividend),]

or any other provision of the Corporation Tax Acts.

(2) Amounts that are treated as expenses of management under any provision listed in subsection (3) are deductible under section 1219 as if they were expenses of management of the company's investment business.

(3) The provisions are—

(a) section 999(4) (deduction for costs of setting up SAYE option scheme or CSOP scheme),

(b) section 1000(3) (deduction for costs of setting up employee share ownership trust),

(c) section 1233 (excess capital allowances),

(d) section 1235 (employees seconded to charities and educational establishments),

(e) section 1236 (payroll deduction schemes),

(f) section 1237 (counselling and other outplacement services),

(g) section 1238 (retraining courses),

(h) section 1239 (redundancy payments and approved contractual payments),

(i) section 1242 (additional payments),

[F5 (ia) section 1244A (contributions to flood and coastal erosion risk management projects),]

(j) section 1245 (payments to Export Credits Guarantee Department).

Textual Amendments

F3 S. 1221(1)(g) repealed (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 685(a), Sch. 3 Pt. 1 (with Sch. 2)

F4 S. 1221(1)(i) substituted (1.1.2014) by Finance Act 2013 (c. 29), Sch. 29 paras. 38, 52

F5 S. 1221(3)(ia) inserted (with effect in accordance with Sch. 5 para. 9 of the amending Act) by Finance Act 2015 (c. 11), Sch. 5 para. 5

1222 Income from a source not charged to tax U.K.

(1) This section applies to a UK resident company if—

(a) income arises to the company from a source not charged to tax,

(b) the company has the source in the course of carrying on its investment business, and

[F6 (c) the income does not consist of exempt ABGH distributions.]

(2) This section applies to a non-UK resident company if—

(a) income arises to the company from a source not charged to tax,

(b) the company has the source in the course of carrying on its investment business through a permanent establishment in the United Kingdom,

(c) the source is property or rights used by, or held by or for, that establishment, and

[F7 (d) the income does not consist of exempt ABGH distributions.]

(3) The amount of that income is deducted from the amount (if any) that would otherwise be deductible under section 1219 for the accounting period in which the income arises.

[F8 (4) In this section “exempt ABGH distribution” means a distribution which—

(a) is a distribution for the purposes of the Corporation Tax Acts only because it falls within paragraph A, B, G or H in section 1000(1) of CTA 2010, and

(b) is exempt for the purposes of Part 9A (company distributions).]

Textual Amendments

F6 S. 1222(1)(c) substituted (with effect in accordance with Sch. 1 para. 73 of the amending Act) by Finance Act 2016 (c. 24), Sch. 1 para. 65(2)(a)

F7 S. 1222(2)(d) substituted (with effect in accordance with Sch. 1 para. 73 of the amending Act) by Finance Act 2016 (c. 24), Sch. 1 para. 65(2)(b)

F8 S. 1222(4) inserted (with effect in accordance with Sch. 1 para. 73 of the amending Act) by Finance Act 2016 (c. 24), Sch. 1 para. 65(2)(c)

1223 Carrying forward expenses of management and other amounts U.K.

(1) This section applies if, in an accounting period of a company with investment business, any amount falling within subsection (2) cannot be deducted in full because—

[F9 (a)] the profits from which the amount is deductible are insufficient[F10 , or

(b) in the case of [F11 an amount] falling within subsection (2)(c)[F12 —

(i) a claim relating to the whole of the amount has not been made under subsection (3B), or]

[F13 (ii) section 269ZD of CTA 2010 (restrictions on deductions from total profits) has effect for the accounting period, or

(iii)] section 269CC of CTA 2010 (restriction on deductions for management expenses) has effect for the accounting period.]

(2) The amounts are—

(a) expenses of management deductible under section 1219,

(b) [F14 qualifying charitable donations made] in the accounting period, so far as [F15 they are made] for the purposes of the company's investment business, and

(c) amounts brought forward to the period under this section.

(3) The excess is treated for the purposes of section 1219 as expenses of management deductible for the next accounting period.

[F16 (3A) But subsection (3) does not apply in relation to so much of the excess as is surrendered as group relief under Part 5 of CTA 2010 or as group relief for carried-forward losses under Part 5A of that Act.

(3B) A deduction in respect of the excess may be made under section 1219 for the next accounting period only on the making by the company of a claim.

(3C) A claim may relate to the whole of the excess or to part of it only.

(3D) A claim must be made—

(a) within the period of two years after the end of the next accounting period, or

(b) within such further period as an officer of Revenue and Customs may allow.

(3E) Subsection (1A) of section 1219 does not apply in relation to a deduction in respect of the excess made for the next accounting period.]

F17 (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(5) See also [F18 section 63 of CTA 2010 (which is about unused losses made in a UK property business)].

Textual Amendments

F9 Words in s. 1223(1) renumbered as s. 1223(1)(a) (with effect in accordance with Sch. 2 paras. 7-8 of the amending Act) by virtue of Finance Act 2015 (c. 11), Sch. 2 para. 3(a)

F10 S. 1223(1)(b) and word inserted (with effect in accordance with Sch. 2 paras. 7-8 of the amending Act) by Finance Act 2015 (c. 11), Sch. 2 para. 3(b)

F11 Words in s. 1223(1)(b) substituted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 6(2)(a)

F12 Words in s. 1223(1)(b) inserted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 6(2)(b)

F13 Words in s. 1223(1)(b) inserted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 144

F14 Words in s. 1223(2)(b) substituted (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 686(2)(a) (with Sch. 2)

F15 Words in s. 1223(2)(b) substituted (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 686(2)(b) (with Sch. 2)

F16 S. 1223(3A)-(3E) inserted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 6(3)

F17 S. 1223(4) repealed (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 686(3), Sch. 3 Pt. 1 (with Sch. 2)

F18 Words in s. 1223(5) substituted (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 686(4) (with Sch. 2)

[F19 1223A Exception for basic life assurance and general annuity business U.K.

(1) Sections 1219 to 1223 do not apply in relation to an accounting period of an insurance company with investment business so far as the business consists of basic life assurance and general annuity business.

(2) See instead the rules set out in Chapter 3 of Part 2 of FA 2012.]

Textual Amendments

F19 S. 1223A inserted (17.7.2012) by Finance Act 2012 (c. 14), Sch. 16 para. 207

Accounting period to which expenses are referable U.K.

1224 Accounting period to which expenses are referable U.K.

(1) Sections 1225 to [F20 1227A] explain which is the accounting period to which expenses of management are referable.

(2) But those sections do not affect any provision—

(a) in Chapter 3, or

(b) elsewhere in the Corporation Tax Acts,

which provides for amounts to be treated as expenses of management referable to an accounting period.

Textual Amendments

F20 Word in s. 1224(1) substituted (6.4.2014) by Finance Act 2014 (c. 26), Sch. 17 paras. 4(4)(a), 6

1225 Accounts conforming with GAAP U.K.

(1) If—

(a) expenses of management are debited in accounts drawn up by a company for a period of account,

(b) the treatment of those expenses in those accounts is in accordance with generally accepted accounting practice, and

(c) the period of account coincides with an accounting period,

the expenses of management are referable to that accounting period.

(2) If—

(a) expenses of management are debited in accounts drawn up by a company for a period of account, and

(b) the treatment of those expenses in those accounts is in accordance with generally accepted accounting practice, but

(c) the period of account does not coincide with an accounting period,

the expenses of management are apportioned between any accounting periods that fall within the period of account (and are referable to accounting periods so far as they are apportioned to them).

(3) An apportionment under subsection (2) must be made in accordance with [F21 section 1172 of CTA 2010] (time basis) or, if it appears that that method would work unreasonably or unjustly, on a just and reasonable basis.

Textual Amendments

F21 Words in s. 1225(3) substituted (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 687 (with Sch. 2)

1226 Accounts not conforming with GAAP U.K.

(1) Subsection (2) applies if—

(a) a company incurs expenses of management, and

(b) the company draws up accounts for a particular period of account, and

(c) the expenses of management would have been debited in those accounts if they had been treated in those accounts in accordance with generally accepted accounting practice, but

(d) they are not debited in those accounts in accordance with generally accepted accounting practice.

(2) The expenses of management are referable to the accounting period to which they would have been referable under section 1225(1) or (2) if they had been debited in those accounts in accordance with generally accepted accounting practice.

1227 Accounts not drawn up U.K.

(1) If—

(a) a company does not draw up accounts, or does not draw them up for a particular period, and

(b) as a result, expenses of management are not referable to an accounting period under section 1225 or 1226,

take the following steps to determine the accounting period to which they are referable.

(2) The steps are—

Step 1

Assume that for each accounting period of the company that does not coincide with, or fall within, any period of account there is a period of account that coincides with it.

Step 2

If it would be in accordance with UK generally accepted accounting practice to debit the expenses of management, or any part of them, in accounts drawn up by the company for that deemed period of account, assume that they are so debited.

Step 3

Making those assumptions, apply section 1225(1).

[F22 1227A Management expenses in relation to salaried members of limited liability partnerships U.K.

(1) This section applies in relation to a company if—

(a) as a member of a limited liability partnership, the company is a company with investment business,

(b) section 1273A(2) (limited liability partnerships: salaried members) applies in the case of a member of the partnership (“M”), and

(c) expenses of management of the company's investment business are paid in respect of M's employment under section 1273A(2) but are not referable to any accounting period under sections 1225 to 1227.

(2) The expenses are to be treated as referable to the accounting period in which they are paid.]

Textual Amendments

F22 S. 1227A inserted (6.4.2014) by Finance Act 2014 (c. 26), Sch. 17 paras. 4(4)(b), 6

Claw back of relief U.K.

1228 Credits that reverse debits U.K.

For the purposes of sections 1229 and 1230, a credit reverses the whole or part of a debit in any case where the credit falls to be made because—

(a) the sum represented in whole or in part by the debit is paid and then wholly or partly repaid, or

(b) the sum represented by the debit is never paid.

1229 Claw back of relief U.K.

(1) This section applies if—

(a) a credit is brought into account by a company in a period of account (“the period of the credit”),

(b) the credit reverses (in whole or in part) a debit brought into account in a previous period of account of the company,

(c) the debit (or part of it) represents expenses of management deductible under section 1219 for an accounting period which ends before, or at the same time as, the period of the credit, and

(d) the expenses of management are not expenses brought forward to that period under section 1223.

For cases involving an absence of accounts see also section 1231.

(2) The reversal amount (see section 1230) is dealt with in accordance with subsection (3) or (5).

(3) If the period of the credit coincides with an accounting period of the company—

(a) the reversal amount is, as far as possible, applied in reducing (but not below nil) the company's expenses of management belonging to that period, and

(b) if not all of the amount can be applied in that way, the remainder is to be treated as a receipt of the company chargeable for that period under the charge to corporation tax on income.

(4) For the purposes of subsection (3), the expenses of management belonging to a period are the expenses of management that are deductible for that period, excluding any amounts brought forward under section 1223.

(5) If the period of the credit does not coincide with an accounting period of the company—

(a) the reversal amount is apportioned between any accounting periods that fall within the period of the credit, and

(b) paragraphs (a) and (b) of subsection (3) are applied to any amount that is apportioned to an accounting period.

(6) An apportionment under subsection (5) must be made in accordance with [F23 section 1172 of CTA 2010] (time basis) or, if it appears that that method would work unreasonably or unjustly, on a just and reasonable basis.

Textual Amendments

F23 Words in s. 1229(6) substituted (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 688 (with Sch. 2)

1230 Meaning of “reversal amount” U.K.

(1) This section gives the meaning of “reversal amount” for the purposes of this Part.

(2) If a credit reverses the whole or part of a debit, the reversal amount is found as follows.

Step 1

Take however much of the credit reverses the debit.

Step 2

Reduce that (if applicable) to however much of the credit reverses the part of the debit that represents expenses of management deductible under section 1219.

Step 3

Reduce that (if applicable) to exclude any part of the credit that represents sums otherwise taken into account in calculating for corporation tax purposes the profits and losses of the company for the relevant accounting period or an earlier accounting period.

(3) In this section “relevant accounting period” means the latest accounting period of the company that falls wholly or partly within the period of the credit (see section 1229(1)(a)).

1231 Absence of accounts U.K.

(1) This section sets out how section 1229 operates if a company has an accounting period that neither coincides with nor falls within any period of account.

(2) Section 1229 operates as if—

(a) there were a period of account of the company that coincides with that accounting period, and

(b) in calculating for accounting purposes the company's profits and losses for that period of account, amounts were brought into account in accordance with UK generally accepted accounting practice.

(3) The references in section 1251(3)(b) (car F24 ... hire) to credits and debits include credits and debits that are deemed to be made by virtue of this section.

Textual Amendments

F24 Words in s. 1231(3) omitted (with effect in accordance with Sch. 11 paras. 65-67 of the amending Act) by virtue of Finance Act 2009 (c. 10), Sch. 11 para. 56