We have a trading company which is the holding company of two dormant subsidiary companies.
Accounts need preparing and filing for the two subsidiary companies.
If we invoice our fee to the holding company, would this be an allowable management expense for corporation tax purposes in the holding company?
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I'd say not ...
The holding company is trading so it isn't an investment company for the purposes of obtaining relief for expenses of management. (I'm not sure if the costs in question would have been anyway.)
The costs obviously aren't trading expenses of the holding company.
Why does the holding company think it desirable or necessary to keep the dormant subsidiaries going. The answer to that may give a clue to what the business purpose is, if there is one.
Rubbish Duncan
A trading company can also have a separate business of being a holding company.
Management expenses do not have to be incurred for any purpose other than that they are an expense of managing the holding company business. Management expenses are only disallowed to the extent that the underlying investments are held for a purpose that is not a business purpose.
John's question does not simply give a clue. The answer to it determines the allowability or otherwise of the expenses.
The accountancy fees represent the cost of meeting the statutory obligations of the subsidiary companies, and not of the holding company. It has nothing to do with management expenses - what is there to 'manage' about dormant companies anyway! It won't be allowed as a deduction against the profits of the holding company.
It seems to me that the fees are incurred wholly and exclusively in connection with the holding company's trade, and are therefore allowable. In my opinion @taxguru's analysis misses the point that the very reason for the companies' existence is the protection of the holding company's trade.
@John
In my opinion @taxguru's analysis misses the point that the very reason for the companies' existence is the protection of the holding company's trade.
And what is the basis of that opinion? If the existence of the subsidiaries does indeed protect the holdco's trade, then the subsi ought to charge the holdco and won't remain dormant.
Like the OP said - to protect the brand names the holding company uses for its products. Forming companies with names you don't want your competitors to be able to use is a common and widespread device for protecting names.
Probably not really helpful, but
I've been involved with many, many groups containing dormant subsidiaries for over forty years, and I have never ever seen these fees disallowed in the holding companies' tax comps. Nor have I ever seen that challenged by any inspector of taxes. In reality, of course, there is rarely any separate bill for these services - they are simply covered in the bill to the holding company.