Corporation Tax Act 2009

Chapter 4 Rules restricting deductions

1247 Introduction

(1) This Chapter contains provisions that restrict the deduction of expenses of management under section 1219.

(2) Other provisions that prohibit or restrict the deduction of expenses of management under section 1219 include—

(a) section 1290 (employee benefit contributions),

(b) section 1298 (business entertainment and gifts),

(c) section 1302 (social security contributions),

(d) section 1303 (penalties, interest and VAT surcharges),

(e) section 1304 (crime-related payments),

(f) section 200 of FA 2004 (no other relief for employers in connection with contributions),

(g) section 246 of FA 2004 (restriction of deduction for non-contributory provision).

(3) See also section 196A of FA 2004 (employers' contributions: power to restrict relief).

1248 Expenses in connection with arrangements for securing a tax advantage

(1) No deduction is allowed under section 1219 for any particular expenses of management if any part of those expenses is incurred directly or indirectly in consequence of, or otherwise in connection with, any arrangements for securing a tax advantage.

(2) In subsection (1) “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.

(3) Subsection (1) does not apply if, as a result of paragraph 7A of Schedule 23A to ICTA (manufactured payments under arrangements having an unallowable purpose), the company incurring the expenses is not entitled to a relevant tax relief in respect of, or referable to, the whole or any part of the expenses.

(4) The reference in subsection (1) to expenses of management includes amounts treated by any provision as deductible under section 1219.

(5) In this section—

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

• “relevant tax relief” has the same meaning as in paragraph 7A of Schedule 23A to ICTA, and

• “tax advantage” has the meaning given by section 840ZA of ICTA.

1249 Unpaid remuneration

(1) This section applies if—

(a) an amount is charged in respect of employees' remuneration in the accounts for a period of a company with investment business,

(b) the amount would apart from this section be deductible under section 1219 as expenses of management, and

(c) the remuneration is not paid before the end of the period of 9 months immediately following the end of the period of account.

(2) If the remuneration is paid after the end of that period of 9 months, the deduction for it is allowed for the period of account in which it is paid (and not in accordance with the timing rule in section 1219(1)).

(3) No deduction is allowed for the remuneration under section 1219 if it is not paid.

1250 Unpaid remuneration: supplementary

(1) For the purposes of section 1249 an amount charged in the accounts in respect of employees' remuneration includes an amount for which provision is made in the accounts with a view to its becoming employees' remuneration.

(2) For the purposes of section 1249 it does not matter whether an amount is charged for—

(a) particular employments, or

(b) employments generally.

(3) If the profits of the company are calculated before the end of the 9 month period mentioned in section 1249(1)(c)—

(a) it must be assumed, in making the calculation, that any remuneration which is unpaid when the calculation is made will not be paid before the end of that period, but

(b) if the remuneration is subsequently paid before the end of that period, nothing in this subsection prevents the calculation being revised and any tax return being amended accordingly.

(4) For the purposes of this section and section 1249 remuneration is paid when it—

(a) is treated as received by an employee for the purposes of ITEPA 2003 by section 18 or 19 of that Act (receipt of money and non-money earnings), or

(b) would be so treated if it were not exempt income.

(5) In this section and section 1249—

• “employee” includes an office-holder and “employment” therefore includes an office, and

• “remuneration” means an amount which is or is treated as earnings for the purposes of Parts 2 to 7 of ITEPA 2003.

1251 Car or motor cycle hire

(1) Subsection (2) applies if, in calculating the total profits of a company with investment business, a deduction is allowed under section 1219 for expenses incurred on the hiring of a car or motor cycle—

(a) which is not a qualifying hire car or motor cycle, and

(b) the retail price of which when new exceeds £12,000.

(2) The amount of the deduction which would otherwise be allowable is reduced by multiplying the amount by the fraction—

where RP is the retail price of the car or motor cycle when new.

(3) Subsection (4) applies if a deduction for expenses is reduced as a result of subsection (2), or a corresponding provision, and—

(a) subsequently—

(i) there is a rebate (however described) of the hire charges, or

(ii) a debt in respect of any of the hire charges is released otherwise than as part of a statutory insolvency agreement, and

(b) a credit representing the rebate, or the amount released, reverses (in whole or in part) a debit representing the expenses.

(4) In applying subsection (2) of section 1230 (calculation of the reversal amount for the purposes of the claw back rules)—

(a) take the amount given by Step 1,

(b) multiply that amount by the fraction set out in subsection (2) above (instead of applying Step 2), and

(c) apply Step 3 to the amount given by paragraph (b).

(5) In this section “corresponding provision” means—

(a) section 56(2) (car or motor cycle hire: trade profits and property income),

(b) section 48(2) of ITTOIA 2005 (car or motor cycle hire: trade profits and property income), or

(c) section 76ZN(2) of ICTA (car or motor cycle hire: expenses of insurance companies).

(6) The power under section 74(4) of CAA 2001 to increase or further increase the sums of money specified in Chapter 8 of Part 2 of CAA 2001 includes the power to increase or further increase the sum of money specified in subsection (1)(b) or (2).

(7) Sections 57 (meaning of “car or motor cycle” and other expressions) and 58 (hiring cars with low CO₂ emissions before 1 April 2013) apply for the purposes of this section as they apply for the purposes of section 56.