Author: Gregory Morris (2002)

In the second of two contributions on Employee Benefit Trusts Gregory Morris warns that all is not what it might seem with corporation tax deductions for corporate contributions
(taken from Issue No 20  – July 2002)

Over the last year or so the Inland Revenue have denied many companies a corporation tax deduction for donations made to employee benefit trusts. This may have potentially serious consequence for trustees, particularly where the employee benefit trust was created a close company.

The Inland Revenue has justified the refusal to allow a corporation tax deduction under a number of heads. For example the Revenue seek to deny a deduction on the basis that the provisions of s.74(1)a Income and Corporation Taxes Act 1988are not satisfied. The Inland Revenue has a certain measure of support in its position following the decision in the 1957 case of Samuel Dracup & Sons Ltd -v- Dakin¹. In addition the Inland Revenue are likely to refer to s.43 Finance Act 1989 which denies a corporation deduction to a company unless taxable emoluments are received within 9 months after year end of the company.