Building blocks of tax: Centrica Overseas Holdings Ltd v HMRC

UK tax legislation is voluminous with many intricate and well-hidden bear traps for the unwary but the case of Centrica reminds us that it is important to understand the fundamental building blocks of the UK tax system. One of those blocks in my opinion is the vital distinction between ‘capital’ and ‘revenue’ expenditure. (An analogous issue that is sometimes overlooked is whether an asset is held as an investment or as trading stock but that is for another article.)

In Centrica the Supreme Court had to decide whether the fees incurred in respect of a sale of assets were ‘expenses of a capital nature’ and thus excluded from deduction as management expenses of an investment business.

Spoiler alert: the Supreme Court unanimously dismissed the taxpayer’s appeal holding that the expenditure was capital in nature.

Background

Centrica Overseas Holdings Ltd (COHL) (an intermediary holding company in Centrica plc...