CTM08160 | Corporation Tax: management expenses: general - case law

Two significant cases on management expenses are:

• Capital and National Trust Ltd v Golder (1949) 31 TC 265, and

• Sun Life Assurance Society v Davidson (1957) 37TC330.

These are summarised below.

Capital and National Trust Ltd v Golder 31TC265

The point at issue was whether the company could claim relief for brokerage and stamp duties as management expenses.

The company was an investment company. It included in its management expenses claim sums for brokerage and stamp duties on changes of investments. The Special Commissioners decided that these sums were not allowable as management expenses. The foundation of the Commissioners' finding was that, where investments are being changed, ‘management’ does not extend beyond the time when a purchase or sale is effected. Therefore, expenditure after that time cannot be an expense of management; it is ‘an integral part of the selling price’ (paragraphs 11 to 31 of the stated case). The court held that the Commissioners' decision was correct.

Sun Life Assurance Society v Davidson 37TC330

The point at issue was whether the company could claim relief for brokerage and stamp duties as management expenses.

The company was a life assurance company. It included in its management expenses claim sums for brokerage and stamp duties in connection with purchases and sales of investments. Sun Life sought to distinguish its business from that of Capital and National Trust Ltd because, it said, buying and selling stocks and shares was part of its trading activity. The Special Commissioners decided that these sums were not allowable as management expenses. They concluded that the brokerage and stamp duties were not general expenses of conducting the society's business, but expenses of the purchase of investments. The court held that the Commissioners' decision was correct.

Although the judgements in these two cases perhaps say more about what is not an expense of management, there are three broad points that are worth noting:

• The words have no special meaning;

• The phrase does not include every expense;

• The phrase should be given a ‘wide’ meaning.

These points can be illustrated with reference to the Sun Life case.

The words have no special meaning

The Special Commissioners said, ‘There is in the relevant legislation no definition of the phrase ‘expenses of management’ and it must accordingly be given its ordinary everyday meaning’. Lord Reid, in his dissenting judgement said, "I do not think that it is possible to define precisely what is meant by ’expenses of management’. It has not been argued that these words have any technical or special meaning in this context. They are ordinary words of the English language, and, like most such words, their application in a particular case can only be determined on a broad view of all relevant matters" (page 360).

The phrase does not include every expense

The Special Commissioners, in paragraph 15(4) of the stated case, said ‘some meaning must be given to the word ‘management’; in other words, not every expense incurred by the society in carrying on its business can necessarily be taken to be an expense of management of that business’ (page 335). The comments were approved by Viscount Simonds who said, the Special Commissioners have recognised what I think is of first importance in interpreting the words in question, namely that they are words of qualification or limitation (page 354).

The phrase should be given a ‘wide’ meaning

Lord Reid favoured a wide interpretation of the phrase ‘expenses of management’ as did Lord Morton of Henryton, for the reasons given by Lord Somervell of Harrow. But it is clear they had in mind, not the particular nature of the expenditure, but rather the level of management. They meant ‘wide’ in the sense of not restricting a deduction to expenses incurred in taking managerial decisions rather than carrying them out. Lord Somervell said, "I wholly reject the distinction sought to be drawn between the management and the carrying on of the business, restricting the former to the head management" (page 362).

The most recent case on the subject Camas PLC v Atkinson [2004] EWCA Civ 541 was heard in the Court of Appeal in April 2004 (see CTM08190 for further details). This case reiterated the need to look at the statutory language.

For further detail on expenses of management in the context of changing investments including acquisitions and disposals see CTM08190 and CTM08260. There is a general test to be applied for all periods (CTM08190) and a capital exclusion that applies only to periods from 1 April 2004 (CTM08260). For take-over bid defence costs, see CTM08200.