Management expenses were of a capital nature

The taxpayer - COHL - was an investment holding company in the Centrica group. It had a Dutch subsidiary Oxxio. In 2009 Centrica decided to sell Oxxio and its subsidiaries although it achieved only a part sale in 2011 by means of a partial demerger. Centrica incurred fees of £3.8m during the period 2009 to 2011 paid to three firms for services relating to the transaction. The expenditure was recharged to COHL which claimed £2.5m as management expenses deductible from its profits.

HMRC refused the claim on basis the expenses did not belong to COHL’s investment business rather they related to a decision already taken by a different company and carried out by Oxxio.

The First-tier Tribunal had found for HMRC although it ruled that the expenses were management expenditure and not capital. The Upper Tribunal allowed the company’s appeal. HMRC appealed.

On HMRC’s assertion that the expenses...