Clause 38 - Expenses of management:
Finance Bill
5:15 pm
Ms Dawn Primarolo (Paymaster General, HM Treasury; Bristol South, Labour)
The Inland Revenue has always argued that under current law capital expenditure does not form part of allowable management expenses. In line with that view, the clause is not intended to restrict relief.
This provision, by stating that capital expenditure is excluded from relief, will ensure that relief for the expenses of managing investments in the context of an investment business is aligned with the rules for trading expenditure. Capital expenditure cannot be deducted when calculating the profits of a trade for tax purposes and it would be inconsistent and unfair to trading companies to allow a more advantageous treatment for investment business.
The general issue of relief for capital expenditure across the corporation tax system is best considered in the wider context of the corporation tax reform programme so that a consistent approach can be maintained. That exercise is continuing, and we have had a great deal of help from business, for which we are very grateful. Indeed, I referred earlier to that continuing debate on corporate tax reform.
The rule is one that I am sure companies will be able to apply in practice without undue difficulty. The distinction between capital expenditure and revenue expenditure has been developed by the courts over a long period and is fundamental to our direct tax code. The Inland Revenue has published draft guidance on how the test will be applied, and it will revise the guidance when it has fully considered the implications of the Camas case.
The rule on capital expenditure is but one aspect of the new management expenses regime. The Government are modernising the rules in response to representations received over a period of years, to extend relief for managing investments. That broadening of the scope of relief has been widely welcomed by business. The new regime will enable more companies to gain relief for the expenses incurred in managing their investments. It will also make it easier for companies to calculate the deductions to which they are entitled.