UK and International Tax news
FTT Decision On Management Expenses
Wednesday 7th May 2014
The FTT has recently published its decision in the complex case of Howden Joinery Group PLC & Anor v HMRC [TC03396], which considered whether payments made or to be made in respect of parental guarantees given over leases of properties entered into by a subsidiary company were deductible as expenses of management [per s.75 TA88].
The top parent company had claimed deductions for guarantee release payments [£5.8m], actual rental guarantee payments [£3.6m] (plus related costs of £1.8m) and provision for future rental guarantee payments [£86.2m].
It was not in dispute that the parent company was an investment company or that the £86.2m provision included in its accounts was made in accordance with UK GAAP and FRS.
The Tribunal confirmed that expenditure on asset management is excluded from expenses of management. To be deductible, the expenditure had to relate to the management of the investment business.
The FTT considered whether the payments were capital and confirmed that payments relating to leases were not always capital. Their character had to be determined on whether an identifiable capital asset had been created/acquired or disposed of. In addition, it considered that the guarantee payments did not automatically follow the nature of the payments being replaced.
The FTT held that the actual release payments were made to protect the ongoing business of the company rather than the investment assets and were therefore allowable. Payments made in respect of actual rental guarantees and the provision for future rental guarantee payments were held to be on the investment assets rather than the investment business and were not allowed.
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