Treatment of capex unrelated to primary business activity

Treatment of capex unrelated to primary...

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My client has set up a racing team during the period, the expenditure for which has been processed through the company (a general trader). 

Clearly, no allowances will be available for tax but can the expenditure, a lot of which is capital on items such as a motor home for the race team, various trailers and equipment, be included within the accounts, rather than put through the DLA?

The directors' argument is that the spend is marketing, as the racing team is emblazoned with the company's details, and should therefore be included in the accounts. 

Clearly this has a significant impact on the accounts therefore I'm just hoping to confirm that the correct treatment should be.

Any guidance much appreciated, thanks in anticipation.

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By George Attazder
28th Oct 2011 11:13

From an accounting perspective...

... I'd have thought it could be capitalised if it's probable that future economic benefits will accrue to the company.

From a tax perspective, I doubt that you will satisfy the "wholly and exclusively for the purposes of the trade" test, and if you don't, there's a significant risk of it being taxed as a distribution under S. 1064 CTA 2010 (http://www.legislation.gov.uk/ukpga/2010/4/section/1064).

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