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The Government has tabled a new clause to Finance Bill 2007, which introduces an anti-avoidance measure concerning the deductibility of certain management expenses.

The new rule introduces an anti–avoidance measure into ICTA 1988, s 75 (Expenses of management: companies with investment business). It is based upon the principle that relief for “expenses of management” should only be available where a company has incurred genuine expenditure in the course of managing its investment business.

The new rule will apply where arrangements produce a contrived deduction or tax advantage, or where any genuine expenses of managing the investment business are artificially increased.

Specifically, new sub-section 75(2A) will introduce a targeted anti-avoidance rule which disallows as a deduction from the profits of a company computed under ICTA 1988, expenses of management where any part of those particular expenses were incurred as part of a scheme to avoid tax. Any expenses of management wholly unconnected to an avoidance scheme will continue to be eligible for relief.

Relief will also be unavailable in relation to manufactured payments in appropriate circumstances.

The changes will apply to accounting periods beginning on or after 20 June 2007 but not to amounts paid before that date.

Where an accounting period straddles the 20 June 2007 then it will be split into two periods for the purposes of determining the amount deductible for expenses of management. The period prior to 20 June 2007 will not be affected by the changes but the period on or after 20 June 2007 will be subject to the new rules.

Sarah Laing