Finance (No. 2) Act 2017

Change in company ownership

79 After Chapter 2D insert—

“CHAPTER 2E Post-1 April 2017 trade losses: cases involving the transfer of a trade

676EA Introduction to Chapter

(1) This Chapter applies if on or after 1 April 2017 there is a change in the ownership of a company (“the transferred company”).

(2) In this Chapter—

• “the change in ownership” means the change in ownership mentioned in subsection (1);

• “the transferred company” has the meaning given by subsection (1).

676EB Restriction on use of trade losses carried-forward on transfer of trade

(1) Subsection (2) applies if—

(a) the transferred company transfers a trade to another company (“the successor company”) within the period of 8 years beginning 3 years before the change in ownership,

(b) the transfer is a transfer to which Chapter 1 of Part 22 applies, and

(c) the transferred company and the successor company are not related to one another both immediately before the change in ownership and at the time of the transfer.

(2) A loss made by the transferred company in the transferred trade in an accounting period beginning before the change in ownership may not be deducted under section 45A or 303C from the relevant profits of an accounting period of the successor company ending after the change in ownership.

(3) Profits of an accounting period of the successor company ending after the change in ownership are “relevant profits” if and so far as—

(a) they arise before the 5th anniversary of the end of the accounting period of the transferred company in which the change in ownership occurs, and

(b) they cannot fairly and reasonably be attributed to the carrying on by the successor company of the transferred trade.

(4) If an accounting period of the transferred company begins before, and ends after the change in ownership, then for the purposes of subsection (2)—

(a) the accounting period is treated as two separate accounting period, the first ending with the change and the second consisting on the remainder of the period, and

(b) a loss made in the trade in the accounting period is apportioned to the two periods.

(5) If an accounting period of the successor company begins before, and ends after, the anniversary mentioned in subsection (3), then for the purposes of that subsection—

(a) the accounting period is treated as two separate accounting periods, the first ending with that date and the second consisting of the remainder of the period, and

(b) the profits of the accounting period are apportioned to the two periods.

(6) Any apportionment under subsection (4)(b) or (5)(b) is to be made on a time basis according to the respective lengths of the two deemed accounting 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.

676EC Restriction on surrender of trade losses carried forward on transfer of trade

(1) This section applies if—

(a) the transferred company or a co-transferred company transfers a trade to another company (“the successor company”) within the period of 8 years beginning 3 years before the change in ownership,

(b) the transfer is a transfer to which Chapter 1 of Part 22 applies, and

(c) another company (“the claimant company”) would, apart from this section, be eligible under Part 5A to make a relevant claim for group relief for carried-forward losses.

(2) For the purposes of this section a claim for group relief for carried forward-losses is a relevant claim if it is—

(a) for an accounting period ending after the change in ownership, and

(b) in respect of an amount surrendered by the successor company which is an amount of a loss—

(i) made in the trade by the transferred company or the co-transferred company in an accounting period beginning before the change in ownership, and

(ii) carried forward to the surrender period of the successor company under section 45A(3), 303B(2) or 303D(3).

(3) The general rule is that the relief is not available.

(4) Subsection (3) does not affect the giving of group relief for carried-forward losses by the making of a deduction under section 188CK(1) from the total profits of the claimant company which arise after the 5th anniversary of the end of the accounting period of the transferred company in which the change in ownership occurs.

(5) Subsection (3) does not affect the availability of relief under Part 5A if immediately before the change in ownership the group condition was met in relation to the claimant company and the transferred company.

(6) If an accounting period of the transferred company or co-transferred company begins before, and ends after the change in ownership, then for the purposes of subsection (2)(b)—

(a) the accounting period is treated as two separate accounting period, the first ending with the change and the second consisting on the remainder of the period, and

(b) a loss made in the trade in the accounting period is apportioned to the two periods.

(7) If an accounting period of the claimant company begins before, and ends after, the anniversary mentioned in subsection (4), then for the purposes of that subsection—

(a) the accounting period is treated as two separate accounting period, the first ending with that date and the second consisting of the remainder of the period, and

(b) the profits of the accounting period are apportioned to the two periods.

(8) Any apportionment under subsection (6)(b) or (7)(b) is to be made on a time basis according to the respective lengths of the two deemed accounting periods.

(9) 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.

676ED Indirect transfers of a trade

(1) Subsections (2) and (3) apply if a trade transferred by the transferred company or a co-transferred company is transferred on a subsequent occasion to another company.

(2) The transferred company or (as the case may be) the co-transferred company is to be treated for the purposes of this Chapter—

(a) as having transferred the trade to that other company, and

(b) as having done so at the time it was actually transferred to that other company.

(3) The deemed transfer is to be treated for the purposes of this Chapter as a transfer to which Chapter 1 of Part 22 applies if the actual transfer to the other company was a transfer to which that Chapter applies.

(4) Subsections (5) and (6) apply if—

(a) a trade (“the original trade”) is transferred by the transferred company or a co-transferred company,

(b) the activities of the original trade are included in the activities of another trade (“the composite trade”), and

(c) the composite trade is transferred to another company.

(5) The transferred company or (as the case may be) the co-transferred company is to be treated for the purposes of this Chapter—

(a) as having transferred the original trade to that other company, and

(b) as having done so at the time the composite trade was actually transferred to that other company.

(6) The deemed transfer is to be treated for the purposes of this Chapter as a transfer to which Chapter 1 of Part 22 applies if the transfer of the composite trade to the other company was a transfer to which that Chapter applies.

676EE Interpretation of Chapter

(1) Section 940B (meaning of “transfer of trade” and related expressions) applies for the purposes of this Chapter as it applies for the purposes of Chapter 1 of Part 22.

(2) In this Chapter “co-transferred company” means any company which is related to the transferred company both immediately before and immediately after the change in ownership.

(3) For the purposes of this Chapter any two companies (“T”) and (“C”) are “related” to one another at any time when—

(a) the group condition is met in relation to T and C, or

(b) any of consortium conditions 1 to 4 is met in relation to T and C,

(whether on the assumption that T is the claimant company and C is the surrendering company or vice versa).

(4) In this Chapter—

• “consortium condition 1” is to be interpreted in accordance with section 188CF,

• “consortium condition 2” is to be interpreted in accordance with section 188CG,

• “consortium condition 3” is to be interpreted in accordance with section 188CH,

• “consortium condition 4” is to be interpreted in accordance with section 188CI,

• “the group condition” is to be interpreted in accordance with section 188CE.””