Revenue expenditure on business rescue payment was deductible where the sum preserved existing trade rather than securing a capital asset.

A payment made to rescue a subsidiary and protect an existing trade was treated as revenue expenditure where, on a proper commercial analysis, it was not consideration for acquiring, improving, or disposing of a capital asset. The House of Lords held that the true nature of the transaction, not the taxpayer's motive alone, determined the character of the payment. Because the subsidiary shareholding was worthless and the sum was contributed to preserve the taxpayer's business from collapse, the payment was deductible in computing trading profits as revenue rather than capital expenditure.

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Issues: Whether the sum of 50m paid by the taxpayer company in connection with the rescue of its subsidiary was revenue expenditure deductible in computing trading profits, or capital expenditure incurred for the acquisition or disposal of a capital asset.

Analysis: The payment had to be characterised by looking at the true nature of the transaction and not merely at the taxpayer's motive. The shareholding in the subsidiary was worthless and not an onerous capital asset. The sum was paid as a contribution to a rescue operation intended to preserve the taxpayer's existing trade from collapse, and not as consideration for obtaining a capital advantage or for disposing of a capital asset. A payment made to remove a threat to the continued carrying on of an existing business is revenue in character where, on a proper analysis, it is not paid for the acquisition, improvement, or divestiture of a capital asset.

Conclusion: The 50m payment was revenue expenditure and was deductible in computing the taxpayer's trading profits; the appeal was allowed and the commissioners' decision restored.

Final Conclusion: A payment made as a contribution towards rescuing a business from collapse, rather than as consideration for the disposal of a capital asset, is to be treated as revenue expenditure for tax purposes.

Ratio Decidendi: Where a payment is made on a proper commercial analysis as a contribution to a rescue operation preserving an existing trade, and not for the acquisition, improvement, or disposal of a capital asset, it is revenue expenditure rather than capital expenditure.

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