What is the purpose of section 1247 of the Corporation Tax Act 2009?

Section 1247 introduces Chapter 4, which restricts the deduction of management expenses for investment companies under section 1219. It also acts as a signpost to other provisions across United Kingdom tax legislation that prohibit or limit management expense deductions, including rules on employee benefit contributions, business entertainment, social security contributions, and crime-related payments.

Which other provisions restrict management expense deductions for investment companies?

Other provisions include section 1290 on employee benefit contributions, section 1298 on business entertainment and gifts, section 1302 on social security contributions, section 1303 on penalties and interest, and section 1304 on crime-related payments. Sections 200 and 246 of Finance Act 2004 also restrict relief for employer pension contributions and non-contributory pension provision respectively.

What happens when a permissive rule conflicts with a restrictive rule on management expenses?

When a permissive rule in Chapter 3 that treats certain costs as management expenses conflicts with a restrictive rule in Chapter 4 that limits or denies the deduction, the restrictive rule takes priority. This is the opposite of the position for trading income, where permissive rules generally prevail, though the practical outcome in overlapping cases is the same.

Can HMRC introduce further restrictions on management expense deductions for pension contributions?

Yes. Section 196A of the Finance Act 2004 grants HMRC the power to make regulations that could impose additional restrictions on management expense deductions in relation to employer pension scheme contributions. Although the section does not itself restrict management expenses, companies should be aware that further limitations may be introduced by regulation under this power.

Corporation Tax Act 2009 section 1247

Introduction

Section 1247 introduces the chapter that restricts the deduction of management expenses for investment companies and signposts other provisions across the tax code that also limit such deductions.

Chapter 4 sets out specific restrictions on the amount of management expenses that an investment company may deduct under section 1219.
Several other provisions outside this Part also prohibit or restrict management expense deductions, covering areas such as employee benefit contributions, business entertainment and gifts, social security contributions, penalties and interest, and crime-related payments.
Additional restrictions arise from Finance Act 2004 rules on employer pension contributions, including a power for HMRC to make regulations that may further limit management expense relief.
Where a permissive rule (allowing an item to be treated as a management expense) conflicts with a restrictive rule (disallowing or limiting the deduction), the restrictive rule takes priority.

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