Business expenses can be a complex issue, which often cause disputes between companies and HM Revenue and Customs (HMRC).
There is often conflict over what counts as trading expenses such office or travel costs, which are deductible, and capital expenses such as machinery, which can usually only be claimed through the capital allowances regime. The issue can become complicated in regard to business costs such as professional advice.
One case concerned a company which had been investigating the benefits of acquiring another business. In doing so it had built up considerable costs in obtaining advice from lawyers, accountants and financial advisers. The company went on to make a proposal to acquire the other company, however this was rejected. The company claimed tax relief on the costs of the professional advice. HMRC however rejected their claim, stating that these were capital expenses and therefore not deductible.
The company appealed the decision. The Court of Appeal judges found in their favour, stating that if the company had been successful in its acquisition, the expenses of the advisors would not have been considered part of the purchase. They were therefore trading expenses and were deductible.
This case highlights that HMRC will dispute claims for tax relief even if it does not have robust reasons for doing so. It is therefore vital to get expert advice on tax issues, especially when there are complicated or unusual components involved.
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