.png)
.png)
Readers' Forum
Replies to Queries — 3
Repair and relaxation?
The directors of our limited company client have incurred significant foreign travel costs on the company's behalf to enable them to attend sporting events and visit business advisers. The directors are unable to provide detailed itineraries, but contend that their attendance at sporting events was to enable them to carry out research into possible corporate hospitality promotions.
Readers' Forum
Replies to Queries — 3
Repair and relaxation?
The directors of our limited company client have incurred significant foreign travel costs on the company's behalf to enable them to attend sporting events and visit business advisers. The directors are unable to provide detailed itineraries, but contend that their attendance at sporting events was to enable them to carry out research into possible corporate hospitality promotions.
The visits to overseas business advisers are said to be necessary to investigate possible company share investments, foreign subsidiary acquisitions and new supplier and customer opportunities. At present the company's business of motor vehicle repair is based wholly in the United Kingdom. Despite considerable costs being incurred, no corporate hospitality events have been arranged and no investments or new business arrangements have been initiated.
Readers' views are invited on the deductibility of the travel costs in the company's corporation tax computation and the avoidance of personal tax assessments for the directors.
(Query T16,450) — Half Full.
The deductibility of the travel costs is likely to be challenged under section 74(1)(a), Taxes Act 1988 on the basis that it was not incurred wholly and exclusively for the purposes of the company's trade. This is a question of fact, as shown in the contrasting decisions in Bowden v Russell & Russell 42 TC 301 and Edwards v Warmsley, Henshall & Co 44 TC 431. 'Half Full' needs to examine the expenditure thoroughly in order to determine whether he has a valid claim. In particular, he should insist on seeing a full itinerary as this will certainly be requested in the event of an Inland Revenue enquiry. He should also ask for full details of the meetings with advisers. Was any actual advice given or were these meetings primarily social calls that coincided with the directors' visits to the sporting events.
The facts of the case do not look promising. It is difficult to see how a motor vehicle repair business would need to take clients to overseas corporate hospitality events. It is also not clear how much actual business advice was obtained. While it is legally the purpose of expenditure rather than the effect that is in point, any such claim is likely to be examined critically in the light of the apparent lack of success.
In principle, expenses relating to new business opportunities should be deductible. However, expenses relating to potential acquisitions and investments may be disallowed if they are considered to be capital in nature. However, general advice on the future expansion of the company should be allowable, but if specific investments are being evaluated this expenditure is likely to be capital in nature.
Some expenditure, notably the travel costs, may have duality of purpose. If so, the costs are disallowable in full, as none of the expenditure is referable wholly and exclusively to the trade. In terms of other costs, the Revenue may in practice permit some apportionment of the expenditure; see for example the comments in the Revenue's Business Income Manual at BIM37615. However, if the directors are assessed under Schedule E in respect of any of the expenditure, then it should be allowed in full in the company's tax return as a form of additional employee remuneration.
