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Grandfather Styles

30 April 2013 / Alistair Godwin
Issue: 4400 / Categories: Comment & Analysis , Business , Capital allowances

Revisiting an old tax case concerning the difference between income and capital expenditure

Whether expenses are of a revenue or a capital nature is a familiar question.

A correct answer is important because in general expenses of a revenue nature are deductible when calculating business profits whereas those of a capital nature are not (the main exception being corporate expenditure on intangible fixed assets like goodwill which may be deductible despite being capital).

Correct identification of a receipt as revenue in nature can therefore result in a lower tax bill for the individual or company concerned.

The Styles case

An issue that arises in practice concerns the treatment of the acquisition of trading contracts: are the purchase monies deductible expenditure? This question was considered as long ago as 1887 in The City of London Contract Corporation v Styles 2 TC 239.

There the Corporation was incorporated as a vehicle to acquire as...

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