The Revenue appealed findings as to the calculation of profits for corporation tax. The companies had sought to deduct sums from profits for depreciation of unsold stock in accordance with current accounting standards.
Held: ‘the profit and loss account is concerned with revenue and expenses. A fall in the value of stock to below cost, although it involves no immediate outgoing or loss of income, is something which the principle of prudence requires should be treated as an expense and reflected in a deduction from that year’s profit. There is no conceptual problem about recognising such a write-down as an immediate expense but carrying the cost of stock forward to be a future expense.’ The sums were properly deducted in accordance with recommended accounting practice.
Judges:
Lord Hoffmann, Lord Hope of Craighead, Lord Walker of Gestingthorpe, Lord Mance, Lord Neuberger of Abbotsbury
Citations:
[2007] UKHL 15, Times 02-Apr-2007, [2007] 1 WLR 1448, [2007] 2 All ER 440
Links:
Statutes:
Companies Act 1985 228(2), Finance Act 1998 42(1), Income and Corporation Taxes Act 1988 74(1)(f)
Jurisdiction:
Scotland
Citing:
Cited – Ostime (Inspector of Taxes) v Duple Motor Bodies Ltd HL 28-Mar-1961
The practice of carrying expenditure on unsold stock forward to be set against the price for which the stock is ultimately sold involves the deduction of the whole of the expenses incurred during the accounting period but the crediting against those . .
Cited – Robert Addie and Sons v Solicitor of Inland Revenue 1875
When computing profits for tax purposes, the taxpayer is not allowed to deduct any sums for depreciation of capital assets. Lord Deas: ‘I think it is better not to run the risk of making any confusion in the grounds of judgment by adding anything to . .
Cited – Odeon Associated Theatres Ltd v Jones 1970
The court gave the formulation for the method of computing profits for corporation tax: ‘For the purposes of Case I or II of Schedule D the profits of a trade, profession or vocation must be computed on an accounting basis which gives a true and . .
Cited – Gallagher v Jones (Inspector of Taxes) Threlfall v Same CA 1-Jul-1993
Commercial Practice is to be followed in apportioning payments under a lease between different tax years. There is no requirement that expenditure must be charged to year it in which technically falls due, but tax accounts must not give a misleading . .
Cited – Commissioner of Inland Revenue v Secan Ltd 2000
(Court of Final Appeal, Hong Kong) The taxpayer company borrowed money to buy some land and build a block of flats. Construction took three years, during which no sales took place. The company’s accounts submitted to the revenue for those years . .
Appeal from – Revenue and Customs v William Grant and Sons Distillers Ltd SCS 23-Aug-2005
. .
Cited by:
Cited – Scottish Widows Plc v Revenue and Customs SC 6-Jul-2011
The taxpayer insurance company had transferred sums from accounts designated as Capital Reserves. The Revenue said that these were properly part of the profit and loss accounts for the respective tax years, and chargeable receipts.
Held: The . .
Lists of cited by and citing cases may be incomplete.
Corporation Tax
Updated: 10 July 2022; Ref: scu.251024