Contract Modification or Grant

The taxpayers, which were required by s. 46 of Corporation Tax Act 2009 to calculate the “profits of [their] trade … in accordance with generally accepted accounting practice, subject to any adjustment required or authorised by law,” were found by the Court to be thereby authorized to deduct the expenses (“Debits”) recognized under IFRS when they granted stock options to employees through an employee benefit trust established by their parent. In finding that this deduction was not precluded by s. 53 of the same Act, which provided that “[i]n calculating the profits of a trade, no deduction is allowed for items of a capital nature,” Lord Hamblen and Lady Rose accepted (at para. 55) the findings of the First-tier Tribunal that the taxpayers’ “employees operate in a professional services business whose success depends on the availability of skilled and motivated professionals and the grant of share options to those employees is part of their remuneration package” and that the “Debits were … recurring costs that had a connection with the Appellants’ earning of income … .”

The taxpayer was obligated under its lease from the Department of the Environment to pay additional rent calculated on the base of its gross takings from business conducted at the leased premises, including tobacco duty. In concluding that a lump sum paid by the taxpayer in order to have the amount of tobacco duty excluded from gross takings for this purpose was a capital expenditure, Lord Wilberforce indicated (at p. 108) that this was "a case of once for all expenditure on a capital asset designed to make it more advantageous".