BIM38200 - Wholly & exclusively: companies

Introduction and layout of guidance

In corporate cases it is important that you establish the company’s purpose in making a particular expenditure. A company’s purpose is that of its directors or shareholders, as expressed in Annual General Meeting - see BIM37055. Where the payment concerns a subsidiary or associated company there are three possibilities:

1. it is providing such assistance solely in the interests of the subsidiary/associate;
2. it is providing such assistance partly in the interests of the subsidiary/associate and partly in its own interests; and
3. it is providing such assistance solely in its own interests.

In situations (1) and (2) the relevant expenditure is not deductible; but in (3) deduction is permissible and (applying Bentleys, Stokes & Lowless v Beeson [1952]33TC491 - see BIM37400) notwithstanding the fact that the subsidiary/associate receives a benefit. The relevant question is ‘what was the object of the person making the disbursement in making it?’ not ‘what was the effect of the disbursement when made?’

The guidance on companies covers the following matters: