Chapter 18 Companies with investment business Flashcards
18.1 Definitions
A company with investment business – defined as a company whose business consists wholly or partly of making investments. It is not simply a company that holds investments or receives investment income, it is a company that has a business of making investments.
An investment company – means a company whose business consists wholly or mainly in the making of investments and which derives the principal part of its income therefrom but does not include the holding company of a trading group.
18.2 Management expenses
Deductible against total profits of a company with investment business, the deduction is based on when they are debited in the accounts. Expenses of a capital nature are not deductible as management expenses, unless they are capital allowances. Expenses only qualify for a deduction if they are incurred in respect of the investment business and to the extent they are not incurred for an unallowable purpose. An investment is held for an unallowable purpose if it is not held for business or commercial purpose. Examples of management expenses are commissions paid to agents, reasonable salaries, premises costs, audit and accountancy costs. Any expenses related to specific income must be set against that source only. Surplus capital allowances are added to management expenses.
18.3 Relief for management expenses
They are automatically set against total profits in the current AP. If they exceed gross income and gains, excess management expenses are carried forward and set against future total profits of the company. The offset is subject to the deductions allowance and is not automatic, a claim must be made within two years of the end of the AP in which the expenses are offset.
Management expenses are offset before charitable donations.
18.4 Loan Interest
Interest paid on loans taken out to purchase investments is a loan relationship debit. Commitment fees and guarantee commissions are part of the cost of raising loans and not management expenses.
