Section 945: Cases in which predecessor retains more liabilities than assets
2804.This section restricts the relief given to the successor under section 944(3) to the extent that (a) the successor does not take over the predecessor’s liabilities and (b) the predecessor does not have enough assets to meet them in full. It is based on sections 343(4) and 344(5) to (7) of ICTA.
2805.The aim of this section is to stop tax relief being given twice for the same expenditure. It is fairly common, especially in receivership cases, for the liabilities of the business not to be transferred with the trade. Those liabilities are then left stranded in the predecessor company, and the creditors stand little or no chance of being paid. In such a case, the creditors have to write off the debts owed to them by the predecessor. If these creditors have incurred these debts in the course of their trades of (a) supplying goods or services or (b) lending money, the write-offs are tax deductible as trading expenses.
2806.But for this section, the successor could also claim tax relief for the same expenditure under the heading of losses carried forward. Under this section, broadly speaking, the losses disallowed in the successor’s hands equate to the amount of the debts which the predecessor is unable to pay.
2807.Subsection (1) states when the section applies, using the terms “L” and “A”.
2808.Subsections (2) and (3) define “L” and “A” respectively.
2809.Subsections (4) and (5) use a formula to determine the amount by which the successor’s relief is restricted. That formula uses “L” and “A” to define “E”.
