693 Meaning of “amount of profits which represents a relevant gain”
(1) In this Chapter, the amount of any profits which represents a relevant gain is found by comparing—
(a) the amount (“Y”) of the relevant gain, with
(b) the amount (“Z”) which is included in respect of chargeable gains or, as the case may be, non-trading chargeable realisation gains for the accounting period concerned.
(2) If Y does not exceed Z, the amount of the profits which represents the relevant gain equals Y.
(3) If Y exceeds Z, the amount of those profits equals Z.
In this Chapter “the relevant provisions” means—
(a) section 8(1) of, and Schedule 7A to, TCGA 1992 (amounts included in respect of chargeable gains in total profits), or
(b) Chapter 6 of Part 8 of CTA 2009 (intangible fixed assets: how credits and debits are given effect).
695 Notional split of accounting period in which change in ownership occurs
(1) This section applies for the purposes of this Chapter.
(2) The accounting period in which the change in ownership occurs (“the actual accounting period”) is treated as two separate accounting periods (“notional accounting periods”), the first ending with the change and the second consisting of the remainder of the period.
(3) The amounts for the actual accounting period in column 1 of the table in section 702(2) are apportioned to the two notional accounting periods in accordance with section 702.
(4) In this Chapter “the actual accounting period” and “notional accounting periods” have the same meaning as in this section.
696 Restriction on debits to be brought into account
(1) This section has effect for the purpose of restricting the debits to be brought into account for the purposes of Part 5 of CTA 2009 (loan relationships) in respect of the company's loan relationships.
(2) But this section applies only if, in accordance with the relevant provisions and section 702, an amount is included in respect of chargeable gains or, as the case may be, non-trading chargeable realisation gains in the total profits of the accounting period of the company in which the relevant gain accrues or arises.
(3) The debits to be brought into account for the purposes of Part 5 of CTA 2009 for—
(a) the accounting period beginning immediately after the change in ownership, or
(b) any subsequent accounting period,
do not include relevant non-trading debits so far as the amount of those debits exceeds the modified total profits of the accounting period.
(4) In subsection (3) “the modified total profits of the accounting period” means the total profits of that period—
(a) less, if that period is the period in which the relevant gain accrues or arises, an amount equal to so much of those profits as represents the relevant gain, and
(b) after deducting any amounts which can be relieved against the profits, other than an amount falling to be deducted under section 461 or 463B(1)(a) of CTA 2009 (claim to set off deficit against other profits for the deficit period).
(5) If, as a result of subsection (3), a debit is to any extent not brought into account for an accounting period, that debit may (to that extent) be brought into account for the next accounting period, but this is subject to the application of subsections (3) and (4) to that next accounting period.
(6) For the meaning of “relevant non-trading debit”, see section 730.
697 Restriction on the carry forward of non-trading deficit from loan relationships
(1) This section has effect for the purpose of restricting the carry forward of a non-trading deficit from the company's loan relationships under Part 5 of CTA 2009 (loan relationships).
(2) But this section applies only if, in accordance with the relevant provisions and section 702, an amount is included in respect of chargeable gains or, as the case may be, non-trading chargeable realisation gains in the total profits of the accounting period of the company in which the relevant gain accrues or arises.
(3) Subsection (4) applies if the non-trading deficit in column 1 of row 5 of the table in section 702(2) is apportioned in accordance with section 702(2) to the first notional accounting period.
(4) None of that non-trading deficit may be carried forward to—
(a) the accounting period beginning immediately after the change in ownership, or
(b) any subsequent accounting period.
698 Restriction on relief for non-trading loss on intangible fixed assets
(1) This section has effect for the purpose of restricting relief under section 753 of CTA 2009 (treatment of non-trading losses) in respect of a non-trading loss on intangible fixed assets.
(2) But this section applies only if, in accordance with the relevant provisions and section 702, an amount is included in respect of chargeable gains or, as the case may be, non-trading chargeable realisation gains in the total profits of the accounting period of the company (“the relevant period”) in which the relevant gain accrues or arises.
(3) Relief under section 753 of CTA 2009 against the total profits of the same accounting period is available only in relation to each of the notional accounting periods considered separately.
(4) Subsection (5) applies if a non-trading loss on intangible fixed assets for an accounting period beginning before the change in ownership is carried forward under section 753(3) of that Act to an accounting period ending after the change in ownership.
(5) The non-trading loss may not be used to give relief under section 753 of that Act in respect of so much of the total profits of the relevant period as represents the relevant gain.
699 Restrictions on the deduction of expenses of management
(1) This section has effect for the purpose of restricting deductions for expenses of management.
(2) Any amounts which—
(a) are, or are treated as, expenses of management referable to the actual accounting period, and
(b) are apportioned to either of the two notional accounting periods in accordance with section 702,
are treated for the purposes of Chapter 2 of Part 16 of CTA 2009 (companies with investment business) as expenses of management referable to that notional accounting period.
(3) Any allowances which are apportioned to either of the notional accounting periods in accordance with section 702 are treated for the purposes of sections 253 and 270HE of CAA 2001 and section 1233 of CTA 2009 (companies with investment business: excess capital allowances) as falling to be made in that notional accounting period.
(4) Subsection (5) applies if, in accordance with the relevant provisions and section 702, an amount is included in respect of chargeable gains or, as the case may be, non-trading chargeable realisation gains in the total profits of the accounting period of the company in which the relevant gain accrues or arises.
(5) In calculating the taxable total profits of the accounting period of the company in which the relevant gain accrues or arises, no deduction may be made under section 1219 of CTA 2009 (expenses of management of a company's investment business) by reference to—
(a) expenses of management deductible for an accounting period beginning before the change in ownership, or
(b) allowances falling to be made for such an accounting period,
from so much of the total profits of the accounting period as represents the relevant gain.
(1) This section has effect for the purpose of restricting relief under sections 62 and 63 for a loss made by the company in a UK property business before the change in ownership.
(2) But this section applies only if, in accordance with the relevant provisions and section 702, an amount is included in respect of chargeable gains or, as the case may be, non-trading chargeable realisation gains in the total profits of the accounting period of the company in which the relevant gain accrues or arises.
(3) Relief under section 62(3) is available only in relation to each of the notional accounting periods considered separately.
(4) A loss made in an accounting period beginning before the change in ownership may not be deducted, as a result of section 62(5) or 63(3), from so much of the profits of an accounting period ending after the change in ownership as represents the relevant gain.
701 Disallowance of overseas property business losses
(1) This section has effect for the purpose of restricting relief under section 66 for a loss made by the company in an overseas property business before the change in ownership.
(2) But this section applies only if, in accordance with the relevant provisions and section 702, an amount is included in respect of chargeable gains or, as the case may be, non-trading chargeable realisation gains in the total profits of the accounting period of the company in which the relevant gain accrues or arises.
(3) A loss in the business made in an accounting period beginning before the change in ownership may not be used under section 66(3) to reduce so much of the profits of the business of an accounting period ending after the change in ownership as represents the relevant gain.
(1) This section applies for the purposes of this Chapter, but subsection (2) is subject to subsection (3).
(2) Any amount for the actual accounting period in column 1 of the following table is to be apportioned to the two notional accounting periods in accordance with the corresponding method of apportionment in column 2 of the table.
Row | 1. Amount to be apportioned | 2. Method of apportionment
1 | The amount which would in accordance with the relevant provisions (and but for this Chapter) be included in respect of chargeable gains or, as the case may be, non-trading chargeable realisation gains in the total profits of the actual accounting period. | (1) If the amount in column 1 does not exceed the amount of the relevant gain, apportion the whole of it to the second notional accounting period. (2) If the amount in column 1 exceeds the amount of the relevant gain, apportion the excess to the first notional accounting period and an amount equal to the relevant gain to the second notional accounting period.
2 | The amount for the actual accounting period of any adjusted non-trading profits from the company's loan relationships (see section 703(2)). | Apportion the amount in column 1 on a time basis according to the respective lengths of the two notional accounting periods.
3 | The amount for the actual accounting period of any adjusted non-trading deficit from the company's loan relationships (see section 703(3)). | Apportion the amount in column 1 on a time basis according to the respective lengths of the two notional accounting periods.
4 | The amount of any non-trading debit that falls to be brought into account for the actual accounting period for the purposes of Part 5 of CTA 2009 (loan relationships) in respect of any debtor relationship of the company. | (1) If condition A in section 703(4) is met, apportion the amount in column 1 by reference to the time of accrual of the amount to which the debit relates. (2) If condition B in section 703(5) is met, apportion the amount in column 1 to the first notional accounting period.
5 | The amount of any non-trading deficit carried forward to the actual accounting period under section 457(1) , 463G(6) or 463H(4) of CTA 2009. | Apportion the whole of the amount in column 1 to the first notional accounting period.
6 | The amount of any non-trading credits or debits in respect of intangible fixed assets that fall to be brought into account for the actual accounting period under section 751 of CTA 2009 (non-trading gains and losses), but excluding any amount within column 1 of row 7. | Apportion to each notional accounting period the credits or debits that would fall to be brought into account in that period if it were a period of account for which accounts were drawn up in accordance with generally accepted accounting practice.
7 | The amount of any non-trading loss on intangible fixed assets carried forward to the actual accounting period under section 753(3) of CTA 2009 and treated under that section as if it were a non-trading loss on intangible fixed assets for that period. | Apportion the whole of the amount in column 1 to the first notional accounting period.
8 | The amount of any expenses of management referable to the actual accounting period within the meaning of Chapter 2 of Part 16 of CTA 2009 (companies with investment business) (but see section 703(6)). | Apportion to each notional accounting period the amounts that would fall to be brought into account in that period as an amount in column 1 if it were a period of account for which accounts were drawn up in accordance with generally accepted accounting practice.
9 | The amount of any excess carried forward under section 1223 of CTA 2009 (expenses of management carried forward) to the actual accounting period. | Apportion the whole of the amount in column 1 to the first notional accounting period.
10 | The amount of any allowances falling to be made for the actual accounting period as a result of section 253 of CAA 2001 which would (but for this Chapter) be added to the expenses of management for the period because of section 1233 of CTA 2009 (excess capital allowances). | Apportion the amount in column 1 on a time basis according to the respective lengths of the two notional accounting periods.
11 | Any other amounts by reference to which the profits or losses of the actual accounting period would (but for this Chapter) be calculated. | Apportion the amount in column 1 on a time basis according to the respective lengths of the two notional accounting periods.
(3) If any method of apportionment in column 2 of rows 2 to 11 of the table in subsection (2) would work unjustly or unreasonably in any case, such other method is to be used as is just and reasonable.
(4) For the meaning of certain expressions used in this section, see section 703.
(1) This section applies for the purposes of the table in section 702(2).
(2) For the purposes of column 1 of row 2 of the table, the amount for the actual accounting period of any adjusted non-trading profits from the company's loan relationships is the amount which would be the amount of the profits from those relationships chargeable under section 299 of CTA 2009 (charge to tax on non-trading profits) if, in calculating that amount, amounts for that period within column 1 of row 4 or 5 of the table were disregarded.
(3) For the purposes of column 1 of row 3 of the table, the amount for the actual accounting period of any adjusted non-trading deficit from the company's loan relationships is the amount which would be the amount of the non-trading deficit from those relationships if, in calculating that amount, amounts for that period within column 1 of row 4 or 5 of the table were disregarded.
(4) Condition A is that—
(a) the amount in column 1 of row 4 of the table is determined on an amortised cost basis of accounting, and
(b) none of the following provisions applies—
(i) section 373 of CTA 2009 (late interest treated as not accruing until paid in some cases),
(ii) section 407 of that Act (postponement until redemption of debits for connected companies' deeply discounted securities), or
(iii) section 409 of that Act (postponement until redemption of debits for close companies' deeply discounted securities).
(5) Condition B is that—
(a) the amount in column 1 of row 4 of the table is determined on an amortised cost basis of accounting, and
(b) any of the provisions mentioned in subsection (4)(b) applies.
(6) The expenses of management mentioned in column 1 of row 8 of the table do not include any expenses for which a deduction under section 1219 of CTA 2009 (expenses of management of a company's investment business) would be disallowed because of subsection (3)(b) of that section.
(1) This section applies if—
(a) there is a change in the ownership of a company carrying on a UK property business,
(b) the company is not a company with investment business, and
(c) condition A or B is met.
(2) Condition A is that within any period of 5 years in which the change in ownership occurs there is a major change in the nature or conduct of a trade or UK property business carried on by the company.
(3) Condition B is that the change in ownership occurs at any time after the scale of the activities in a trade or UK property business carried on by the company has become small or negligible and before any significant revival of the trade or business.
(4) The following provisions have effect for the purpose of restricting relief under section 62 for a loss made by the company in a UK property business before the change in ownership.
(5) The accounting period in which the change in ownership occurs (“the actual accounting period”) is treated for that purpose as two separate accounting periods (“notional accounting periods”), the first ending with the change and the second consisting of the remainder of the period.
(6) The profits or losses of the actual accounting period are apportioned to the two notional accounting periods on a time basis according to the respective lengths of the two periods.
(7) But if that method of apportionment would work unjustly or unreasonably in any case, such other method is to be used as is just and reasonable.
(8) Relief under section 62(3) is available only in relation to each of the notional accounting periods considered separately.
(9) A loss made in an accounting period beginning before the change in ownership may not be—
(a) carried forward under section 62(5)(a) to an accounting period ending after the change in ownership, or
(b) treated in relation to such an accounting period as mentioned in section 62(5)(b).
(10) In this section “major change in the nature or conduct of a trade or UK property business” includes—
(a) a major change in the type of property dealt in, or services or facilities provided in, the trade or business, or
(b) a major change in customers, outlets or markets of the trade or business.
This section applies even if the change is the result of a gradual process which began before the period of 5 years mentioned in subsection (2).
705 Company carrying on overseas property business
(1) This section applies if—
(a) there is a change in the ownership of a company carrying on an overseas property business,
(b) the company is not a company with investment business, and
(c) condition A or B is met.
(2) Condition A is that within any period of 5 years in which the change in ownership occurs there is a major change in the nature or conduct of a trade or overseas property business carried on by the company.
(3) Condition B is that the change in ownership occurs at any time after the scale of the activities in a trade or overseas property business carried on by the company has become small or negligible and before any significant revival of the trade or business.
(4) The following provisions have effect for the purpose of restricting relief under section 66 for a loss made by the company in an overseas property business before the change in ownership.
(5) The accounting period in which the change in ownership occurs (“the actual accounting period”) is treated for that purpose as two separate accounting periods (“notional accounting periods”), the first ending with the change and the second consisting of the remainder of the period.
(6) The profits or losses of the actual accounting period are apportioned to the two notional accounting periods on a time basis according to the respective lengths of the two periods.
(7) But if that method of apportionment would work unjustly or unreasonably in any case, such other method is to be used as is just and reasonable.
(8) A loss in the business made in an accounting period beginning before the change in ownership may not be used under section 66(3) to reduce the profits of the business of an accounting period ending after the change in ownership.
(9) In this section “major change in the nature or conduct of a trade or overseas property business” includes—
(a) a major change in the type of property dealt in, or services or facilities provided in, the trade or business, or
(b) a major change in customers, outlets or markets of the trade or business.
This section applies even if the change is the result of a gradual process which began before the period of 5 years mentioned in subsection (2).
(1) This Chapter applies where there is a change in the ownership of a shell company.
(2) In this Chapter—
“the change in ownership” means the change in ownership mentioned in subsection (1);
“the company” means the company mentioned in subsection (1);
“shell company” means a company that—
is not carrying on a trade,
is not a company with investment business, and
is not carrying on a UK property business.
705B Notional split of accounting period in which change in ownership occurs
(1) This section applies for the purposes of this Chapter.
(2) The accounting period in which the change in ownership occurs (“the actual accounting period”) is treated as two separate accounting periods (“notional accounting periods”), the first ending with the change and the second consisting of the remainder of the period.
(3) The amounts for the actual accounting period in column 1 of the table in section 705F(2) are apportioned to the two notional accounting periods in accordance with section 705F.
(4) In this Chapter “the actual accounting period” and “notional accounting periods” have the same meaning as in this section.
705C Restriction on debits to be brought into account
(1) This section has effect for the purpose of restricting the debits to be brought into account for the purposes of Part 5 of CTA 2009 (loan relationships) in respect of the company's loan relationships.
(2) The debits to be brought into account for the purposes of Part 5 of CTA 2009 for—
(a) the accounting period beginning immediately after the change in ownership, or
(b) any subsequent accounting period,
do not include relevant non-trading debits so far as amount A exceeds amount B.
(3) Amount A is the sum of—
(a) the amount of those relevant non-trading debits, and
(b) the amount of any relevant non-trading debits which have been brought into account for the purposes of that Part for any previous accounting period ending after the change in ownership.
(4) Amount B is the amount of the taxable total profits of the accounting period ending with the change in ownership.
(5) For the meaning of “relevant non-trading debit”, see section 730.
705D Restriction on carry forward of non-trading deficit from loan relationships
(1) This section has effect for the purpose of restricting the carry forward of a non-trading deficit from the company's loan relationships under Part 5 of CTA 2009 (loan relationships).
(2) Subsection (3) applies if the non-trading deficit in column 1 of row 4 of the table in section 705F(2) is apportioned in accordance with section 705F to the first notional accounting period.
(3) None of that non-trading deficit may be carried forward to—
(a) the accounting period beginning immediately after the change in ownership, or
(b) any subsequent accounting period.
705E Restriction on relief for non-trading loss on intangible fixed assets
(1) This section has effect for the purpose of restricting relief under section 753 of CTA 2009 (treatment of non-trading losses) in respect of a non-trading loss on intangible fixed assets.
(2) Relief under section 753 of CTA 2009 against the total profits of the same accounting period is available only in relation to each of the notional accounting periods considered separately.
(3) A non-trading loss on intangible fixed assets for an accounting period beginning before the change in ownership may not be—
(a) carried forward under section 753(3) of that Act to an accounting period ending after the change in ownership, or
(b) treated under that section as if it were a non-trading loss on intangible fixed assets for that period.
(1) This section applies for the purposes of this Chapter.
(2) Any amount for the actual accounting period in column 1 of the following table is to be apportioned to the two notional accounting periods in accordance with the corresponding method of apportionment in column 2 of the table.
Row | 1. Amount to be apportioned | 2. Method of apportionment
1 | The amount for the actual accounting period of any adjusted non-trading profits from the company's loan relationships (see section 705G(2))). | Apportion the amount in column 1 on a time basis according to the respective lengths of the two notional accounting periods.
2 | The amount for the actual accounting period of any adjusted non-trading deficit from the company's loan relationships (see section 705G(3)). | Apportion the amount in column 1 on a time basis according to the respective lengths of the two notional accounting periods.
3 | The amount of any non-trading debit that falls to be brought into account for the actual accounting period for the purposes of Part 5 of CTA 2009 (loan relationships) in respect of any debtor relationship of the company. | (1) If condition A in section 705G(4) is met, apportion the amount in column 1 by reference to the time of accrual of the amount to which the debit relates. (2) If condition B in section 705G(5) is met, apportion the amount in column 1 to the first notional accounting period.
4 | The amount of any non-trading deficit carried forward to the actual accounting period under section 457(1), 463G or 463H of CTA 2009 (... carry forward to accounting periods after deficit period). | Apportion the whole of the amount in column 1 to the first notional accounting period.
5 | The amount of any non-trading credits or debits in respect of intangible fixed assets that fall to be brought into account for the actual accounting period under section 751 of CTA 2009 (non-trading gains and losses) .... | Apportion to each notional accounting period the credits or debits that would fall to be brought into account in that period if it were a period of account for which accounts were drawn up in accordance with generally accepted accounting practice.
6 | The amount of any non-trading loss on intangible fixed assets carried forward to the actual accounting period under section 753(3) of CTA 2009 .... | Apportion the whole of the amount in column 1 to the first notional accounting period.
7 | Any other amounts by reference to which the profits or losses of the actual accounting period would (but for this Chapter) be calculated. | Apportion the amount in column 1 on a time basis according to the respective lengths of the two notional accounting periods.
(3) If any method of apportionment in column 2 of the table in subsection (2) would work unjustly or unreasonably in any case, such other method is to be used as is just and reasonable.
(4) For the meaning of certain expressions used in this section, see section 705G.
705G Meaning of certain expressions in section 705F
(1) This section applies for the purposes of the table in section 705F(2).
(2) For the purposes of column 1 of row 1 of the table, the amount for the actual accounting period of any adjusted non-trading profits from the company's loan relationships is the amount which would be the amount of the profits from those relationships chargeable under section 299 of CTA 2009 (charge to tax on non-trading profits) if, in calculating that amount, amounts for that period within column 1 of row 3 or 4 of the table were disregarded.
(3) For the purposes of column 1 of row 2 of the table, the amount for the actual accounting period of any adjusted non-trading deficit from the company's loan relationships is the amount which would be the amount of the non-trading deficit from those relationships if, in calculating that amount, amounts for that period within column 1 of row 3 or 4 of the table were disregarded.
(4) Condition A is that—
(a) the amount in column 1 of row 3 of the table is determined on an amortised cost basis of accounting, and
(b) none of the following provisions applies—
(i) section 373 of CTA 2009 (late interest treated as not accruing until paid in some cases),
(ii) section 407 of that Act (postponement until redemption of debits for connected companies' deeply discounted securities), or
(iii) section 409 of that Act (postponement until redemption of debits for close companies' deeply discounted securities).
(5) Condition B is that—
(a) the amount in column 1 of row 3 of the table is determined on an amortised cost basis of accounting, and
(b) any of the provisions mentioned in subsection (4)(b) applies.
(1) If there is a change in the ownership of a company, a person is “linked” to the company, for the purposes of this Chapter, if condition A or B is met.
(2) Condition A is that the person had control of the company at any time in the relevant period before the change.
(3) Condition B is that the person is a company of which a person mentioned in subsection (2) had control at any time in the period of 3 years before the change.
(4) For the meaning of—
(a) “control”, see section 707, and
(b) “the relevant period”, see section 709.
(1) This section applies for the purposes of this Chapter.
(2) A person (“P”) is treated as having control of a company (“C”) if P—
(a) exercises,
(b) is able to exercise, or
(c) is entitled to acquire,
direct or indirect control over C's affairs.
(3) In particular, P is treated as having control of C if P possesses or is entitled to acquire—
(a) 50% of the share capital or issued share capital of C,
(b) 50% of the voting power in C,
(c) so much of the issued share capital of C as would, on the assumption that the whole of the income of C were distributed among the participators, entitle P to receive the greater part of the amount so distributed, or
(d) such rights as would entitle P, in the event of the winding up of C or in any other circumstances, to receive the greater part of the assets of C which would then be available for distribution among the participators.
(4) Any rights that P or any other person has as a loan creditor are to be disregarded for the purposes of the assumption in subsection (3)(c).
(5) If two or more persons together satisfy any of the conditions in subsections (2) and (3) and do so because they acted together to put themselves in a position where they will in fact satisfy the condition, each of them is treated as having control of C.
(6) In this section—
“loan creditor” has the meaning given by section 453, and
“participator” has the meaning given by section 454.
(7) See also section 708 (rights to be attributed for the purposes of this section).
708 Rights to be attributed for the purposes of section 707
(1) This section applies for the purposes of section 707.
(2) A person is treated as entitled to acquire anything which the person—
(a) is entitled to acquire at a future date, or
(b) will at a future date be entitled to acquire.
(3) If a person—
(a) possesses any rights or powers on behalf of another person (A), or
(b) may be required to exercise any rights or powers on A's direction or behalf,
those rights or powers are to be attributed to A.
(4) There may also be attributed to a person all the rights and powers—
(a) of any company of which the person has, or the person and associates of the person have, control,
(b) of any two or more companies within paragraph (a),
(c) of any associate of the person, or
(d) of any two or more associates of the person.
(5) The rights and power which may be attributed under subsection (4)—
(a) include those attributed to a company or associate under subsection (3) but
(b) do not include those attributed to an associate under subsection (4).
(6) Such attributions are to be made under subsection (4) as will result in C being treated as under the control of 5 or fewer participators if it can be so treated.
(7) In this section—
“associate” has the meaning given by section 448, and
“participator” has the meaning given by section 454.
(1) This section applies for the purposes of this Chapter.
(2) “The relevant period”, in relation to a change in the ownership of a company, means the period of 3 years before the change.
(3) But if in the period of 3 years before the change (“the later change”) there was another change in the ownership of the company (“the earlier change”), “the relevant period”, in relation to the later change, means the period between the earlier change and the later change.
710 Recovery of unpaid corporation tax for accounting period beginning before change
(1) This section applies if an officer of Revenue and Customs considers that—
(a) there has been a change in the ownership of a company (“X”),
(b) any corporation tax assessed on X for an accounting period beginning before the change remains unpaid at any time more than 6 months after it was assessed, and
(c) any of conditions A to C in section 711 (conditions relating to company's trade or business) is met.
(2) A person who is linked to X may be assessed by the officer and charged to an amount of corporation tax which does not exceed the amount remaining unpaid.
(3) A person assessed and charged under this section is to be assessed and charged in the name of X.
(4) An assessment under this section is not out of time if it is made within 3 years from the date of the final determination of the liability of X to corporation tax for the accounting period mentioned in subsection (1)(b).
711 Conditions relating to company's trade or business
(1) The following are the conditions mentioned in section 710(1)(c).
(2) Condition A is that—
(a) in the period of 3 years before the change in the ownership of X, the activities of a trade or business of X cease or the scale of those activities becomes small or negligible, and
(b) there is no significant revival of those activities before the change occurs.
(3) Condition B is that after the change in the ownership of X, but under arrangements made before it, the activities of a trade or business of X cease or the scale of those activities becomes small or negligible.
(4) Condition C is that—
(a) there is a major change in the nature or conduct of a trade or business of X in the relevant 6 year period,
(b) a relevant transfer of assets of X occurs—
(i) in the period of 3 years before the change in the ownership of X, or
(ii) after the change but under arrangements made before it, and
(c) the major change mentioned in paragraph (a) is attributable to that transfer.
(5) In this section—
“the relevant 6 year period” means the period of 6 years beginning 3 years before the change in the ownership of X,
“relevant transfer”, in relation to assets of X, means a transfer of those assets—
to a person who had control of X at any time in the relevant period before the change in the ownership of X,
to a person connected with a person mentioned in paragraph (a), or
to a person under arrangements which enable any of those assets, or any assets representing those assets, to be transferred to a person mentioned in paragraph (a) or (b), and
“transfer”, in relation to an asset, includes—
any disposal, letting or hiring of it,
any grant or transfer of any right, interest or licence in or over it, and
the giving of any business facilities with respect to it.
(6) For the meaning of “a major change in the nature or conduct of a trade or business”, see section 712.
712 Meaning of “a major change in the nature or conduct of a trade or business”
(1) This section applies for the purposes of section 711(4).
(2) “A major change in the nature or conduct of a trade or business” includes—
(a) a major change in the type of property dealt in, or services or facilities provided, in the trade or business,
(b) a major change in customers, outlets or markets of the trade or business,
(c) a change by which the company ceases to be a trading company and becomes an investment company,
(d) a change by which the company ceases to be an investment company and becomes a trading company, and
(e) if the company is an investment company, a major change in the nature of the investments held by the company.
(3) Any reference in subsection (2) to a change includes a change which is achieved gradually as a result of a series of transfers.
(4) In this section “trading company” means a company whose business consists wholly or mainly in the carrying on of a trade or trades.
(5) For the purposes of this section, a company is an investment company if—
(a) its business consists wholly or mainly in the making of investments, and
(b) the principal part of its income is derived from investments.
(6) But a company is not an investment company if its business consists wholly or mainly in the holding of shares or securities of companies—
(a) which are its 90% subsidiaries, and
(b) which are trading companies.
713 Recovery of unpaid corporation tax for accounting period ending on or after change
(1) This section applies if an officer of Revenue and Customs considers that—
(a) there has been a change in the ownership of a company (“Y”),
(b) any corporation tax has been assessed on Y or an associated company for an accounting period ending on or after the change,
(c) that tax remains unpaid at any time more than 6 months after it was assessed, and
(d) the condition in section 714 (the expectation condition) is met.
(2) A person who is linked to Y may be assessed by the officer and charged to an amount of corporation tax which does not exceed the amount remaining unpaid.
(3) A person assessed and charged under this section is to be assessed and charged in the name of the company (“T”) by which the tax remains unpaid.
(4) An assessment under this section is not out of time if it is made within 3 years from the date of the final determination of the liability of T to corporation tax for the accounting period mentioned in subsection (1)(b).
(5) For the meaning of “associated company”, see section 718.
(1) The condition mentioned in section 713(1)(d) is that it would be reasonable (apart from section 713) to make the inference specified in subsection (3) from any of the matters specified in subsection (2).
(2) Those matters are—
(a) the terms of any transactions entered into in connection with the change in the ownership of Y, and
(b) the other circumstances of the change and of any such transactions.
(3) The inference is that at least one of the transactions mentioned in subsection (2) was entered into by one or more of its parties on the assumption that, if a potential tax liability were to arise, it would be unlikely to be met or to be met in full.
(4) A “potential tax liability” is a liability to pay corporation tax which would or might arise—
(a) from an assessment, made after the change in ownership, on Y or an associated company (whether or not a particular associated company), and
(b) in foreseeable circumstances.
(5) Circumstances are “foreseeable circumstances” if—
(a) the circumstances were reasonably foreseeable at the time of the change in ownership, or
(b) there was a reasonably foreseeable risk at that time that the circumstances might occur.
(6) For the meaning of “transaction entered into in connection with change in ownership”, see section 715.
715 Meaning of “transaction entered into in connection with change in ownership”
(1) This section has effect for the purposes of section 714.
(2) A transaction is entered into in connection with a change in the ownership of Y if—
(a) it is the transaction, or one of the transactions, by which the change is effected, or
(b) it is entered into as part of a series of transactions, or scheme, of which transactions effecting the change have formed or will form part.
(3) Any reference in this section to a scheme is to a scheme, arrangements or understanding of any kind.
(4) It does not matter for the purposes of subsection (3)—
(a) whether the scheme, arrangements or understanding is legally enforceable, or
(b) how many transactions are involved.
(5) It does not matter, for the purpose of determining whether any transactions have formed or will form part of a series of transactions or scheme, that the parties to each of the transactions are not the same.
(6) The cases in which any two or more transactions are to be taken as forming part of a series of transactions or scheme include a case in which it would be reasonable to assume that one or more of them—
(a) would not have been entered into independently of the other or others, or
(b) if entered into independently of the other or others, would not have taken the same form or been on the same terms.
(1) Section 87A of TMA 1970 (interest on overdue corporation tax etc) has effect in relation to corporation tax assessed under section 710 or 713 (recovery of unpaid corporation tax) with the following modification.
(2) That modification is that any reference to the date when the tax becomes due and payable is to be read as a reference to the date when the tax became due and payable—
(a) in the case of an assessment under section 710 (recovery of tax for accounting period beginning before change), by X,
(b) in the case of an assessment under section 713 (recovery of tax for accounting period ending on or after change), by Y or the associated company, depending on which is the company whose unpaid tax gave rise to the assessment.
717 Effect of payment in pursuance of assessment under section 710 or 713
(1) A payment—
(a) in pursuance of an assessment under section 710 or 713 (recovery of unpaid corporation tax), or
(b) of interest under section 87A of TMA 1970 (as that section has effect in accordance with section 716),
is not allowed as a deduction in calculating income, profits or losses for any tax purposes.
(2) A person who makes such a payment may recover an amount equal to the payment—
(a) in the case of an assessment under section 710 (recovery of tax for accounting period beginning before change), from X, or
(b) in the case of an assessment under section 713 (recovery of tax for accounting period ending on or after change), from Y or the associated company, depending on which is the company whose unpaid tax gave rise to the assessment.
(1) This section has effect for the purposes of sections 713 and 714.
(2) “Associated company”, in relation to Y and an assessment to tax, means a company (whenever formed) which, at the time of the assessment or at an earlier time after the change in the ownership of Y—
(a) has control of Y,
(b) is a company of which Y has control, or
(c) is a company under the control of the same person or persons as Y.
719 Meaning of “change in the ownership of a company”
(1) For the purposes of this Part there is a change in the ownership of a company if condition A, B or C is met.
(2) Condition A is that a single person acquires a holding of more than half the ordinary share capital of the company.
(3) Condition B is that—
(a) two or more persons each acquire a holding of at least 5% of the ordinary share capital of the company, and
(b) those holdings together amount to more than half the ordinary share capital of the company.
(4) Condition C is that—
(a) two or more persons each acquire a holding of the ordinary share capital of the company, and
(b) those holdings together amount to more than half the ordinary share capital of the company,
but there is disregarded a holding of less than 5% unless—
(i) it is an addition to an existing holding, and
(ii) the two holdings together amount to at least 5% of the ordinary share capital of the company.
(4A) For the purposes of Chapters 2A to 2E there is also a change in the ownership of a company (“C”) if, as a result of the acquisition by a person of a holding of the ordinary share capital of the company, the group condition (as defined in section 188CE) is met in relation to C and another company (“A”) (which was not a member of the same group of companies as C before the acquisition).
In this subsection the reference to membership of a group of companies is to be interpreted in accordance with section 188FB.
(5) See also sections 721 and 722 which provide for things other than ordinary share capital to be taken into account in determining whether there has been a change in the ownership of a company.
(1) The following provisions apply for the purposes of section 719.
(2) The circumstances at any two points in time with not more than 3 years between may be compared, and a holder (“H”) at the later time may be regarded as having acquired whatever H did not hold at the earlier time.
It does not matter what H has acquired or disposed of in between.
(3) To allow for any issue of shares or other reorganisation of capital, the comparison may be made in terms of percentage holdings of the total ordinary share capital at the respective times, so that a person whose percentage holding is greater at the later time may be regarded as having acquired a percentage holding equal to the increase.
(4) To decide if a person has acquired—
(a) a holding of at least 5%, or
(b) a holding which makes at least 5% when added to an existing holding,
acquisitions by, and holdings of, two or more persons who are connected persons are to be added together as if they were acquisitions by, and holdings of, one and the same person.
(5) Any acquisition of shares under a will or on intestacy is left out of account.
(6) Any gift of shares which is unsolicited and made without regard to the provisions of this Part is left out of account.
721 When things other than ordinary share capital may be taken into account: Chapters 2 to 5A
(1) This section applies for the purposes of Chapters 2 to 5A if conditions A and B are met.
(2) Condition A is that persons (whether company members or not) possess extraordinary rights or powers under any document regulating a company.
(3) Condition B is that because of that fact ownership of the ordinary share capital may not be an appropriate test of whether there has been a major change in the persons for whose benefit the relief may ultimately enure.
(4) In determining whether there has been a change in the ownership of the company for the purposes of Chapter 2, 2A, 2B, 2C, 2D, 2E, 3, 4 , 5 or 5A , any of the following may be taken into account instead of ordinary share capital—
(a) holdings of all kinds of share capital,
(b) holdings of any particular kind of share capital,
(c) voting power, and
(d) any other kind of special power.
722 When things other than ordinary share capital may be taken into account: Chapter 6
(1) This section applies for the purposes of Chapter 6 if conditions A and B are met.
(2) Condition A is that persons (whether company members or not) possess extraordinary rights or powers under any document regulating a company.
(3) Condition B is that because of that fact ownership of the ordinary share capital may not be an appropriate test of whether there has been a change in the ownership of the company.
(4) In determining whether there has been a change in the ownership of the company for the purposes of Chapter 6, any of the following may be taken into account instead of ordinary share capital—
(a) holdings of all kinds of share capital,
(b) holdings of any particular kind of share capital,
(c) voting power, and
(d) any other kind of special power.
(1) This section applies if there is a change in the ownership of a company, other than a change in ownership which is disregarded because of section 724 or 724A .
(2) The reference in subsection (1) to a change in the ownership of a company includes a change in ownership occurring as a result of the application of this section.
(3) If condition A in section 719 is met, the person mentioned in that condition is treated for the purposes of this Chapter as having acquired at the time of the change in ownership any relevant assets owned by the company.
(4) If condition B in section 719 is met but condition A is not, each of the persons mentioned in condition B is treated for the purposes of this Chapter as having acquired at the time of the change in ownership the appropriate fraction of any relevant assets owned by the company.
(5) In a case not falling within subsection (3) or (4), each of the persons mentioned in condition C in section 719 (other than any person whose holding is disregarded for the purposes of that condition) is treated for the purposes of this Chapter as having acquired at the time of the change in ownership the appropriate fraction of any relevant assets owned by the company.
(6) In this section—
“the appropriate fraction”, in relation to one of two or more persons mentioned in subsection (4) or (5), means—
X
Y
where—
X is the percentage of the ordinary share capital acquired by that person, and
Y is the percentage of that capital acquired by all those persons taken together, and
“relevant assets”, in relation to a company, means—
any ordinary share capital of another company, and
any property or rights which under section 721 or 722 may be taken into account instead of ordinary share capital of another company.
(1) A change in the ownership of a company (“the subsidiary company”) is disregarded for the purposes of Chapters 2 to 6 if —
(a) immediately before the change in ownership, the subsidiary company is a qualifying 75% subsidiary of another company (“the parent company”), and
(b) although there is a change in the direct ownership of the subsidiary company, the subsidiary company continues after the change to be a qualifying 75% subsidiary of the parent company.
(2) For the purposes of this section, the subsidiary company is a qualifying 75% subsidiary of the parent company if conditions A, B and C are met.
(3) Condition A is that the subsidiary company is a 75% subsidiary of the parent company.
(4) Condition B is that the parent company would be beneficially entitled to at least 75% of any profits available for distribution to equity holders of the subsidiary company.
(5) Condition C is that the parent company would be beneficially entitled to at least 75% of any assets of the subsidiary company available for distribution to its equity holders on a winding up.
(6) Chapter 6 of Part 5 (equity holders and profits or assets available for distribution) applies for the purposes of subsections (4) and (5) as it applies for the purposes of section 151(4)(a) and (b).
(1) Where a new company (“N”) acquires all the issued share capital of another company (“C”), the resulting ownership change is disregarded for the purposes of Chapters 2 to 6 if, immediately after that acquisition (“the acquisition”), N—
(a) possesses all of the voting power in C,
(b) is beneficially entitled to 100% of any profits available for distribution to equity holders of C,
(c) would be beneficially entitled to 100% of any assets of C available for distribution to its equity holders in the event of a winding up of C or in any other circumstances, and
(d) meets the continuity requirements.
(2) “The resulting ownership change” means the change in the ownership of C by reason of Condition A in section 719 being met in relation to the acquisition.
(3) A company is “new” if, before the acquisition, it has neither—
(a) issued any shares other than subscriber shares, nor
(b) begun to carry on any trade or business.
(4) N meets the continuity requirements if, and only if—
(a) the consideration for the acquisition consists only of the issue of shares in N to the shareholders of C,
(b) immediately after the acquisition, each person who immediately before the acquisition was a shareholder of C is a shareholder of N,
(c) immediately after the acquisition, the shares in N are of the same classes as were the shares in C immediately before the acquisition,
(d) immediately after the acquisition, the number of shares of any particular class in N bears to all the shares in N the same proportion, or as nearly as may be the same proportion, as the number of shares of that class in C bore to all the shares in C immediately before the acquisition, and
(e) immediately after the acquisition, the proportion of shares of any particular class in N held by any particular shareholder is the same, or as nearly as may be the same, as the proportion of shares of that class in C held by that shareholder immediately before the acquisition.
(5) For the purposes of this section, N is treated as acquiring all the issued share capital of C for consideration consisting only of the issue of shares in N to the shareholders of C if, as a result of a scheme of reconstruction involving the cancellation of all shares in C and the issue of shares in N—
(a) N holds all the issued share capital of C by reason of that share capital being issued to N by C, and
(b) only shares in N are issued to the persons who were shareholders of C immediately before the shares in C were cancelled.
(6) In a case within subsection (5), subsection (4) applies as if any reference to immediately before the acquisition were a reference to immediately before the shares in C were cancelled.
(7) “Scheme of reconstruction” means a scheme carried out in pursuance of a compromise or arrangement—
(a) to which Part 26 or 26A of the Companies Act 2006 (arrangements and reconstructions) applies, or
(b) under any corresponding provision of the law of a country or territory outside the United Kingdom.
(8) Chapter 6 of Part 5 (equity holders and profits or assets available for distribution) applies for the purposes of subsection (1)(b) and (c) as it applies for the purposes of section 151(4).