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Tax deductible travelling cost on research trips visiting overseas fund managers?

My client has a very successful retail business and it generates a lot of significant excess cashflow.  While interest income is practically zero, my client decided to look at the investment opportunities of different funds managers in different countries, and spent very heavily attending and visiting a number of overseas funds managers with the assistance of an investment advisor who accompanied him on these research trips.  My question is, whether a trading (non investment) company who spends on reviewing options with the intention of efficiently utilising and optimising the company's reserves, cash or otherwsie, would meet the "wholly, exclusively, and necessarily" conditions.

Many thanks for your comments.

Ed

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20th Feb 2011 22:59

If your client's about to start up a trade of being an offshore

... then it's "wholly and exclusively" incurred. "Necessarily" is only a consideration in an employment context.

If he's going to start an investment activity with his surplus cash, it may be a management expense deductible from the income from those investment activities.

On either case, given that it's aimed at setting up the activity, it could be argued that it's capital and so not allowable.

Otherwise, it's got absolutely bugger all to do with his existing trade, so you shouldn't exepect a deduction against the profits from the existing trade.

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21st Feb 2011 09:42

Yes

I tend to agree with Cirius that it could be a management expense for the company (assuming it is the company which is going to make investments).  A trading company is allowed to claim management expenses if it also has investment business (CTM08040). 

I'm not sure I agree that finding an appropriate fund manager is capital in nature.  The HMRC guidance, I presume influenced by the Camas case, say "Expenditure on appraising and investigating investments will in general be revenue in nature" .... "For example, expenses incurred on obtaining preliminary reports and profit forecasts for a number of investment options, such as any prudent investor might obtain, are not capital expenditure because at this point the company is merely appraising its investment opportunities" (CTM08260).

I realise that the HMRC manuals refer to a specific investment rather than somebody to manage the investments for you.  But the principle seems the same to me - there is not a connection between a specific capital investment and the appraisal of the fund mangers.  

Since management expenses are deducted from the company's profits chargeable to corporation tax, the effect of claiming this expenditure as management expenses, in a period prior to having any investment income, would effectively be allowed against the company's trading profits.  But it is important to indicate in the tax computations that the expenses are claimed as management expenses, since they would not meet the wholly & exclusively test required to be a trading deduction.

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21st Feb 2011 10:17

That is what I have in mind

 Many thanks Cirius.  Your comment has cemented something in my mind.

Ed

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21st Feb 2011 10:32

Transfer the cost to a holding company

Hi Thisistibi, many thanks for your comments.  In a way, I am thinking to advise the client to transfer the cost to the Holding Company as it was set up to own shares in the Trading company, so a more ligitimate claim on the expenses.  Anyway, I will give it a bit more thoughts.

Many thanks

Ed

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21st Feb 2011 12:24

The cynic in me wonders...

These different countries wouldn't be places that just happen to be nice for a wee holiday?

The "investment advisor" wouldn't also happen to be his wife too?

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21st Feb 2011 13:18

Nice countries?

 Hello Roland, I am afraid you might be disappointed.  Just USA, China, India and those countries that have high growth potential.  Definitely not BVI or the like.  Also, the advisor is a proper fund manager with a lot of connections in the countries visited.

Nice thoughts.

Ed

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21st Feb 2011 14:54

Years of experience

Hello Roland, I am afraid you might be disappointed.  Just USA, China, India and those countries that have high growth potential.  Definitely not BVI or the like.  Also, the advisor is a proper fund manager with a lot of connections in the countries visited.

Nice thoughts.

Ed

I am afraid my years of experience in accounting leaves me with little faith in clients terms, thus :-

No private use = do you seriously expect me to get my new pick up dirty by filling it with grubby tools?

Essential Professional subscriptions = golf club

Specialist computer monitor for presentations = HD TV

 

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