CT – deductibility of delisting costs
Are the costs of delisting / taking a company private an allowable expense for Corporation Tax?
This was the question in a recent tax case concerning a haulage and vehicle rentals business which was listed on the London Stock Exchange in 1988. The flotation was not a success for a number of reasons including poor liquidity of the shares. In mid 2000 the business was delisted and reverted back to private company status.
The Tribunal examined whether the costs of the delisting from the Stock Exchange were deductible in computing the Corporation Tax profits for the year ending 31 December 2000. The costs in question amounted to over £400k consisting mainly of professional fees, the greater part of which were fees paid to the advisers to the independent directors.
Both the taxpayer and HMRC agreed that the company was a trading company and both parties also agreed it would be theoretically possible to be both a trading company and an investment company at the same time. The Tribunal Judge, after examining the facts, confirmed that the company was in reality engaged in trade and concluded “that it is not an investment company within the meaning of s130, and on that ground alone the appeal must accordingly fail”.
The Judge also ruled on the point of whether the costs were expenses of management if contrary to his initial findings the business was to be regarded as an investment company. The appeal would also ultimately have been dismissed on these grounds.