Annex 1: Minor Changes in the Law Change 82: Expenses of management: cessation of business: sections 1240 and 1242 and Schedule 1
This change clarifies the deduction timing rule in cases where an investment business ceases.
Before FA 2004 a company claiming management expenses had to be one “whose business consists wholly or mainly in the making of investments” (part of the definition of “investment company” in section 130 of ICTA, used in section 75(1) of ICTA). So it was likely that when the business ceased to be carried on there would be an end of an accounting period in accordance with section 12(3)(e) of ICTA.
The timing rules in sections 90(1)(ii) and 579(3A) of ICTA make the payments referable to the “accounting period ending on the last day on which the … business was carried on”. If an accounting period ends on that day, the rule is straightforward.
Since FA 2004 management expenses are available to a company with investment business. Such a company may carry on other activities, such as a trade. So it is not necessarily the case that the cessation of the investment business triggers the end of an accounting period.
These sections cater for the possibility that an accounting period does not end with the cessation of the investment business: they refer to the accounting period in which the investment business ceases. If an accounting period does in fact end with the cessation of the investment business, there is no change in the law.
This change applies also to the corresponding rule for expenses of insurance companies in sections 76ZG and 76ZI of ICTA (inserted by Schedule 1 to this Act).
This change will not alter the amount charged to tax. The most it will do is affect the timing of that tax liability. In a small minority of cases this could mean a different rate of tax being applied, according to individual circumstances. Any overall tax effect is likely to be negligible.