1.Section 33 introduces Schedule 13 which extends the scope of the loss buying rules in Part 14 Corporation Tax Act 2010 (CTA 2010) by restricting the availability of non-trading debits, non-trading loan relationship deficits and non-trading losses on intangible fixed assets after a change of ownership of a shell company.
2.Paragraph 1 extends the current Part 14 CTA 2010 rules by introducing new Chapter 5A to encompass the change of ownership of shell companies.
3.New section 705A introduces the Chapter, states where it applies and defines the terms “a change of ownership” and a “shell company” used in the Chapter.
4.New section 705B states that the accounting period in which the change of ownership occurs should be split into two notional accounting periods. The first notional accounting period ending with the date of change and the second covering the balance of the period. The section directs the reader to the table at section 703F which apportions amounts to these notional accounting periods
5.New section 705C restricts how non-trading loan relationship debits are accounted for after the change in ownership. The debits, after the change in ownership, are to be reduced by the amount of total taxable profits in the period before the change in ownership.
6.New section 705D ensures that non-trading loan relationship deficits carried forward from a previous year are apportioned to the first notional accounting period and prevents any amount being carried forward to any subsequent period after the change of ownership.
7.New section 705E deals with non-trading losses on intangible fixed assets. Firstly, it ensures that only the in year non trading losses on intangible fixed assets are appropriately apportioned to the notional accounting periods and relieved against the appropriate amount of the total profits apportioned to the notional accounting periods. Secondly, it ensures that non trading non trading losses on intangible fixed assets carried forward from a previous year are apportioned to the first notional accounting period and prevents any amount being carried forward to any subsequent period after the change of ownership.
8.New section 703F consists of a table providing details of how to apportion amounts to the notional accounting periods. The table mirrors the existing table in Chapter 3 of Part 14 for changes of ownership of investment companies (but omits references to management expenses or capital allowance excesses as they are not relevant to Chapter 5A). The apportionments can be made on a just and reasonable basis if the apportionment in the table would work unjustly or unreasonably in any case.
9.New section 703G provides further definitions of the amounts of non-trading profit and deficits, referred to in the table, provides for consequential amendments and gives the commencement date.
10.Paragraph 2 makes consequential amendments to Part 14.
11.Paragraph 3 sets out the date from which amendments made by the Schedule have effect.
12.This section is one of three that seek to close existing loopholes in the loss rules.
13.This is the first of two that specifically deal with Part 14.
14.The purpose of Part 14 is to counter loss buying by restricting relief for carried forward CT losses across a change in ownership of a company. A change in ownership as defined at section 719; where, broadly, 51% of the company’s shares change hands.
15.Relief is restricted if the trade (Chapter 2), investment business (Chapter 3), property business (Chapter 5) carried on by a company undergoes a major change within 3 years of the change in ownership; or the change in ownership occurs after the company’s activities had revived after becoming small & negligible .
16.If there has been a major change following a change of ownership a company carrying on a trade or property business cannot use losses arising before the date of the change in ownership to set off against profits arising after the date of the change in ownership.
17.Slightly different rules apply to company’s carrying on investment businesses on a change in ownership. If any of the conditions are met the losses of the company are divided into those occurring before and after the date of the change in ownership. Any losses occurring before that date can not be set against profits arising after that date.
18.The restriction covers non trading loan deficits, non trading losses on intangible fixed assets, excess management expenses and UK property business losses