The most commonly encountered provision dealing with Case I and
II deductions is in ICTA88/S74 (1) and (2). The section prescribes
various classes of expenditure, loss or outgoing (actual or
notional). Expenditure under these headings is not deductible under
Case I or II. These prohibitions are, however, subject to the other
provisions of the Taxes Acts which may allow a deduction that would
otherwise be prevented by one or more subsections of Section 74 (1)
- see
BIM42075 for further guidance.
The following table summarises the separate prohibitions in
ICTA88/S74 (1) and indicates where more detailed guidance may be
found.
| ICTA88/S74 subsection | Prohibited item | Further guidance |
| 1(a) | Any disbursements or expenses which are not money wholly and exclusively laid out or expended for the purposes of the trade etc | BIM42100 onwards |
| 1(b) | Any disbursements or expenses of the parties, their families or establishments, or any sums expended for any other domestic or private purposes distinct from the purposes of the trade etc | BIM55250 |
| 1(c) | Rent of the whole or of any part of any dwelling house or domestic offices, except any such part as is used for the purposes of the trade etc. Where a part is so used, the deduction is not to exceed two thirds of the rent bona fide paid for that dwelling house or domestic offices unless in all the circumstances some greater part ought to be deducted | BIM61410, BIM55255 |
| 1(d) | Any sum expended for repairs of premises occupied, or for the supply, repairs or alterations of any implements or articles employed for the purposes of the trade etc beyond the sum actually expended for those purposes | BIM46900 onwards |
| 1(e) | Any loss not connected with or arising out of the trade etc | |
| 1(f) | Any capital withdrawn from or any sum employed or intended to be employed as capital in the trade etc. This prohibition is not to be treated as disallowing any interest | BIM35000 onwards BIM45650 onwards |
| 1(g) | Any capital employed in improvements of premises occupied for the purpose of the trade etc | |
| 1(h) | Any interest which might have been made if any of the sums mentioned earlier in the section had been laid out at interest | |
| 1(j) |
Any debts except:
| BIM42700
onwards |
| 1(k) | Any average
loss beyond the actual amount of loss after adjustment
The subsection applies to cases of marine and aviation risk where either there is no insurance or the insurance is for less than full value or is ’free from average'. An adjustment arises in the case of a ‘general average loss'. This occurs where any damage or loss has been properly and voluntarily incurred in respect of a ship or cargo for its safety. For example, goods may be jettisoned to lighten a vessel in a storm. The rule allows those who do not suffer any loss in such circumstances to deduct as an expense adjusted average contributions. Those who do suffer loss can deduct only the net amount, which is the amount as reduced by the average contribution received | |
| 1(l) | Any sum recoverable under an insurance or contract of indemnity | |
| 1(m) | Any other annuity or other annual payment (except interest) payable out of the profits or gains | BIM42600
onwards |
| 1(n) | Any interest paid to a person not resident in the UK if and so far as it is interest at more than a reasonable rate of interest | BIM45775 |
| 1(o) | Any interest
in so far as the payment is, or would be, otherwise than by virtue
of ICTA88/S375 (2), either:
| |
| 1(p) | Any royalty or other sum paid in respect of the user of a patent | BIM45965 |
| 1(q) | Any rent, royalty or other payment which is by ICTA88/S119 or S120 to be subject to deduction of tax under ICTA88/S348 or S349 as if it were a royalty or other sum paid in respect of the user of a patent. | BIM42605 |
