William Grant and Mars in £4m House of Lords victory

Manufacturing News, Source : The Manufacturer
Published : 10 Apr 2007 15:22

LAW: House of Lords victory to have far reaching effect on tax accounting for manufacturers

Whisky distiller William Grant and confectionary giant Mars have won a landmark case in the House of Lords which may relieve the manufacturing sector of substantial tax liabilities. The House of Lords ruled unanimously in favour of the two companies in their dispute with HM Revenue & Customs.

The decision has been acclaimed as a triumph for the application of modern accounting practice for tax purposes, and will have a considerable impact on the tax liabilities, not just of the two companies involved, but also for a large number of manufacturing business waiting upon the outcome.

Mark Stephenson, tax partner at Deloitte, commented: “The subject of the dispute – depreciation charged to stock – relates to the question of whether companies should pay tax on profits before they’ve earned them...

“In a tax computation, the depreciation charged against profit in the year has to be added back to arrive at the taxable profit. The issue is whether the add-back should be the (gross) amount written off the asset in the year or the (net) amount actually charged against profit after carrying part of it forward in closing stock.”

HMRC maintained it should be the gross amount which results in the full amount of the depreciation being taxed in the year. The companies maintained it should be the net amount, “so the tax charge would reflect the company’s true profit for the year – and the House of Lords upheld the companies’ view,” he said.

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