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The Inland Revenue has decided not to appeal against the decision of the Special Commissioners, given on 31 May, in a landmark case involving four building societies that converted from mutual status to banks. At stake was nearly half a billion pounds of costs that had been incurred by the Woolwich, Halifax, Northern Rock and Alliance and Leicester. In all four cases, the Inland Revenue had disallowed deductions in respect of the costs of conversion, and contended, first, that the sums incurred were not incurred wholly and exclusively for the purposes of the trade and, secondly, that the expenditure was capital in nature (See section 74 (1), Income and Corporation Taxes Act 1988). The cases were heard sequentially, with Halifax plc v Davidson [2000] STC (SCD) 251 being the first. As the Halifax served as the base case for legal argument (with variances only being addressed in the other three cases), this article focuses mainly on the Halifax.

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