BIM80125 - Case VI: General: deductions

The rules of Case VI contain no specific directions regarding the deductions to be allowed in computing the `full amount of the profits or gains'. In practice the rules of Cases I and II should normally be followed, so far as they are applicable (see the dicta of Rowlatt J in Curtis Brown Ltd v Jarvis [1929] 14TC752 - 14TC753).

Interest paid is normally excluded, however, because in the case of profits of a casual or occasional nature it is unlikely that interest would pass the `wholly and exclusively' test. If the disallowance is not accepted, a report should be sent with the file to Business Tax (Technical).

As regards furnished lettings, see instead PIM5159.

There is normally no entitlement to capital allowances in respect of miscellaneous profits assessable under Case VI of Schedule D. See however-

a) CA24010 onwards in the case of profits from the letting of machinery and plant,

and

b) PIM3200 in connection with the letting of furnished houses.

If any expenses deductible in computing Case VI income have borne VAT which is irrecoverable the deduction should be the amount inclusive of VAT.

COMMISSION PASSED ON TO CUSTOMERS

Paragraph 21 of SP4/97 gives guidance on the circumstances in which a deduction may be given in computing the Case VI profit where commission is passed on to the customer. In Way v Underdown [1974] 49TC215 the judge refused to give a deduction under Case VI to a person acting as intermediary for insurance commission passed on to a policyholder. This was on the grounds that the intermediary was under no legally binding obligation to do so. In practice, where the circumstances make it clear that the commission would not have been earned if the taxpayer had not been willing to pass it on, you should accept that a deduction is due.

Guidance on the application of SP4/97 to income within Schedule D Cases I and II is at BIM40650 onwards.