Chapter CTM06210
| Published date | 16 April 2016 |
| Record Number | CTM06210 |
CTA10/S941 does not lay down a minimum period throughout which the predecessor and successor companies must be in common ownership (see CTM06010). Parties who are otherwise unconnected for tax purposes can exploit this feature. They arrange for the trade to appear to be in common ownership before and after its transfer from one company to another.
The procedure such parties normally adopt is as follows:
- The trading company acquires a non-trading subsidiary.
- The trading company transfers the trade to the non-trading subsidiary, and claims that the conditions of CTA10/S941 are satisfied.
- The trading company then sells the shares in that subsidiary to the new owners.
If these arrangements succeed the predecessor avoids balancing charges on the assets sold to the subsidiary, and the new owners acquire the predecessor’s unused CTA10/S45 carry forward losses along with the trade. A case where there may be exploitation of CTA10/S941 can normally be identified by the sale of the subsidiary shortly after the transfer of the trade - often on the same day or within a matter of days or weeks.
The primary counter to exploitation is the relevant liabilities restriction under CTA10/S945 - see CTM06250. If it is evident from the accounts and computations that:
-
the amount of losses remaining after the application of this restriction,
and/or
-
the amount of balancing charge which would arise taking into account market values of assets
are significant, consideration should be given to whether the conditions of CTA10/S941 were properly satisfied. A critical test here is whether the subsidiary to which the loss-making trade was transferred began to carry on the trade before the predecessor company lost the beneficial ownership of the subsidiary’s shares. If not, if the trade transfer took place at the same time as or after the share sale, CTA10/S941 will not apply because the successor company will not be able to demonstrate that it commenced to carry on the trade at a time at which it was in common ownership with the predecessor company. See Barkers of Malton Ltd v HMRC SPC00689 (2008) for a consideration of this issue.
In such cases an officer should:
- determine the sequence of events and the precise date and timing of each step,
- obtain copies of any agreements for the transfer of both the trade and the shares, and
- obtain the files for both the predecessor and successor companies,
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