Corporation tax - capital allowances - expenditure on installation of all-weather race track not qualifying as incurred on plant or machinery

Shove (Inspector of Taxes) v Lingfield Park 1991 Ltd: ChD (Mr Justice Hart): 11 July 2003

In 1991, the taxpayer company incurred expenditure of 2.9 million on installing an artificial all-weather track so that it could carry on horse racing in all conditions.

The company's appeal from the refusal of the tax inspector to allow it to deduct the expenditure under section 24 of the Capital Allowances Act 1990 in computing its corporation tax liability for the relevant period was upheld by the general commissioners, who concluded, after reviewing the relevant authorities, that the artificial track retained a separate identity from the grass track and buildings and, as such, was not part of the premises but functioned as a plant.

The inspector appealed.

Timothy Brennan QC (instructed by the Solicitor, Inland Revenue) for the inspector; David Milne QC and Elizabeth Wilson (instructed by Nicholson Graham & Jones) for the company.

Held, allowing the appeal, that section 24 of the Capital Allowances Act 1990, provided for expenditure incurred on plant or machinery to qualify for relief; that the issue was whether the artificial track functioned as part of the company's premises or was apparatus, separate from the premises where the company's business was conducted; that the commissioners' decision flew in the face of ordinary language; and that the only conclusion open to them was that the artificial track functioned as part of the premises of the company's business and thus the expenditure incurred on it failed to qualify for relief.

Corporation tax - investment company - professional fees incurred on failed takeover bid deductible as 'expenses of management'

Camas plc v Atkinson (Inspector of Taxes): ChD (Mr Justice Patten): 7 July 2003

In 1995, the taxpayer, an investment company, incurred substantial expenditure on professional fees incurred in the course of its unsuccessful negotiations to acquire, as an investment, another investment company.

The taxpayer claimed it was entitled to deduct those costs in computing its chargeable profits under section 75 of the Income and Corporation Taxes Act 1988, as being 'expenses of management'.

The special commissioners upheld the tax inspector's decision to disallow the claim.

The taxpayer appealed.

Kevin Prosser QC and Julian Ghosh (instructed by Freshfields Bruckhaus Deringer) for the taxpayer; Launcelot Henderson QC and Christopher Tidmarsh QC (instructed by the Solicitor, Inland Revenue) for the Crown.

Held, allowing the appeal, that under section 75 of the 1988 Act, investment companies, in computing liability to corporation tax, were entitled to deduct 'any sums disbursed as expenses of management'; that the phrase 'expenses of management' was to be construed widely, the test being whether the expenditure was part of the acquisition costs or on something severable which could properly be regarded as an expense of management; that the commissioner had misapplied the test and the only proper conclusion was that the costs of taking the necessary professional advice on the abortive project were within the definition of 'expenses of management' and as such deductible.