Income debits were deductible
HMRC v NCL Investments Ltd & Anor. The taxpayer, N, used an employee benefit trust to provide shares in a holding company to employees. Under the share scheme, the employees paid to acquire share options at fair value. The balance was paid to the holding company on a monthly basis. N prepared its accounts and claimed a deduction for accounting debits against trading profits in the income statement. HMRC contended that the debits were not deductible. Its arguments were rejected by both tax tribunals and the Court of Appeal.
Law. A deduction against profits is only permitted if they are revenue, rather than capital in nature under s.53 Corporation Tax Act 2009 (CTA) and have been included in the profit calculation in accordance with generally accepted accounting principles (GAAP) . The expense must also be incurred wholly and exclusively for the purposes of the trade. S.1290 also blocks a deduction for property held under an “employee benefit scheme”. HMRC argued that any or all of these four points meant there could be no deduction given.
Decision. The Supreme Court rejected all four arguments from HMRC. The debits had been calculated in accordance with International Financial Reporting Standard 2 and was not capital in nature. The options were not “property” held by an employee benefit scheme.
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