Centrica Overseas Holdings Ltd v Commissioners for His Majesty’s Revenue and Customs

The Supreme Court considered whether professional advisory fees paid by an intermediate investment holding company (COHL) were deductible as "expenses of management" under section 1219 of the Corporation Tax Act 2009 or were instead excluded as "expenses of a capital nature" under section 1219(3)(a). The court held that the phrase "expenses of a capital nature" in section 1219(3)(a) has the same meaning as "items of a capital nature" in section 53(1) and must be interpreted by reference to established capital/revenue principles. Applying those principles to the unchallenged findings of fact made by the First-tier Tribunal, the professional fees were incurred to bring about the disposal of an identifiable capital asset (the Oxxio business) and were therefore capital in nature and excluded from deduction under section 1219(3)(a).

The court emphasised the distinction between (i) whether expenditure constitutes an "expense of management" and (ii) whether that expense is capital in nature; the two questions are separate. Authority and legislative history (including the Finance Act 2004 and explanatory notes) supported aligning the capital exclusion for investment companies with the capital/revenue case law applicable to trading companies (section 53(1)). The appeal was dismissed.

Background and parties: COHL, an intermediate holding company in the Centrica group, paid professional advisers (Deutsche Bank, PwC and De Brauw) fees totalling £2,529,697 up to 22 February 2011 in connection with the proposed sale of the Oxxio group. COHL claimed those sums as deductible "expenses of management" under section 1219 of the Corporation Tax Act 2009. HMRC disallowed the claim on the basis that, although the payments were expenses of management, they were of a capital nature and therefore excluded by section 1219(3)(a).

Procedural history: The FTT analysed the advisory services and concluded that much of the Deutsche Bank and PwC fees were expenses of management (with a different view on De Brauw). The Upper Tribunal accepted the approach to expenses of management but remitted some De Brauw issues. The Court of Appeal held the disputed expenditure was capital and not deductible. COHL appealed to the Supreme Court on the capital/revenue question only.

• Nature of the claim: deduction of professional advisory fees as expenses of management under section 1219 for the accounting period ending 31 December 2011.
• Issues framed: (i) whether the capital exclusion in section 1219(3)(a) is to be understood by reference to the conventional capital/revenue principles applied to trading companies (as in section 53(1)); and (ii) if so, whether the unchallenged factual findings meant the disputed fees were nonetheless revenue in nature.

Court's reasoning: The court applied the usual rules of statutory interpretation, having regard to context and purpose, legislative history (including the Finance Act 2004 and explanatory notes) and the established capital/revenue case law. It concluded that Parliament used the phrase "of a capital nature" in section 1219(3)(a) in the conventional sense and intended alignment with the trading rules. The capital/revenue distinction is a question of law to be applied to the tribunal's findings of fact. On the facts the objective purpose of the fees was to achieve the disposal of an identifiable capital asset (Oxxio). Expenditure incurred to bring about the disposal of a capital asset is normally capital in nature; uncertainty that a sale might ultimately fail does not make such expenditure revenue. The Supreme Court therefore held the Disputed Expenditure was capital and excluded from deduction under section 1219(3)(a).

Subsidiary findings and wider context: the court emphasised that the decision does not deprive investment companies of ordinary revenue deductions for day-to-day management costs (staff, rent, administration, repairs). It clarified the separate legal questions of whether expenditure is an expense of management and whether it is capital in nature.

Appeal dismissed. The Supreme Court held that the phrase "expenses of a capital nature" in section 1219(3)(a) has the same meaning as "items of a capital nature" in section 53(1) and must be determined by reference to established capital/revenue principles. Applying those principles to the FTT's unchallenged factual findings, the advisory fees were incurred to enable the disposal of an identifiable capital asset (the Oxxio business) and were therefore capital in nature and excluded from deduction under section 1219(3)(a).

First-tier Tribunal decision: [2020] UKFTT 197 (TC) (FTT analysed adviser services and found many fees were expenses of management); Upper Tribunal: [2021] UKUT 200 (TCC), [2021] STC 1842 (UT accepted FTT's test but remitted some De Brauw issues); Court of Appeal: [2022] EWCA Civ 1520, [2023] 1 WLR 316 (held disputed expenditure was capital); Supreme Court: [2024] UKSC 25 (this appeal).