DST47100 - UK CT Deductibility of DST

There are no specific rules determining the deductibility or otherwise of DST against any other tax liability. For UK Corporation Tax the normal rules concerning whether expenditure is an allowable deduction should be considered in respect of each DST liability. In particular, it is important to determine whether the DST liability expense is incurred wholly and exclusively for the purposes of the company’s trade. The rules apply in the same way they do to any other type of expense. Guidance on the wholly and exclusively rule is contained in the Business Income Manual in BIM37000 and BIM42100 onwards.

Although calculated at a group level, the DST arises on the individual companies in the group that recognise the UK DST revenues. It is consequently these companies which are individually liable to DST and we expect the DST expense will normally be recognised in their accounts. When determining the UK CT liability, the company will need to consider the wholly and exclusively rules for whether the DST is an allowable deduction like it would for any other expense.

The availability of any deduction will depend on the particular facts and circumstances of the business. However, it should be noted that a company’s DST expense is directly related to the earning of its revenues and is a legal obligation of performing that trade. Therefore, in most cases it is likely the expense will have been incurred wholly and exclusively for the purposes of the trade.

If there are intra-group arrangements such that a single entity pays to HMRC the entire amount of the groups DST charge this would need to be considered in the same way as any other situation where a single entity incurs expenditure on behalf and for the benefit of other members of the group