38.This section defines what is meant by “starting a new business”.
39.Subsection (1) provides that P starts a new business when P begins to carry on a new business.
40.Subsection (2) defines when a business is not to be regarded as a “new business”. In the vast majority of cases there will be no question about whether a new business has started as no business will have existed before and so this test will be satisfied.
41.The definition of a new business provides that a business will not be a new business if the person applying for the Holiday has at any time in the six months before the start of the business carried on another business consisting of most of the activities of which the most recent business consists. This is to prevent a business ceasing and then restarting or restructuring itself in order to take advantage of the Holiday in circumstances where it is not actually a new business.
Example
Roy carries on a business as a carpenter with two employees. He is offered a job working for a larger business and accepts, closing his own business and releasing his employees. He doesn’t enjoy his new job and leaves after 3 months. He begins to carry on his old business as a carpenter, and re-hires his former employees. This is not a new business as, within the six months prior to it starting, Roy carried on another business consisting of the activities of which the business consists.
42.Subsections (2)(b) and (3) provide that a business is not a “new” business if P carries it on as a result of a transfer. That happens when P begins to carry on the business on another person ceasing to carry on the activities of which it consists or mostly consists in consequence of arrangements involving P and the other person. So where:
there is a transfer of activities of an existing business from one person to another,
those activities constitute all or most of the activities of the business to which the transfer is made, and
there is an arrangement for the transfer between the parties,
this will not count as a new business.
Examples
Sam is a publican, running a pub in a small village. He wishes to retire and sells the pub as a going concern to Tom, who takes over the trade and continues to employ the pub’s staff. Tom is not carrying on a new business, as the whole of the trade he is now carrying on was previously carried on by Sam.
Jim is a sole trader, a plumber. The business incorporates and Jim’s wife Rosie is named as the sole director. Jim is then taken on by the company as an employee. This is not a new business, as the whole of the trade carried on by the company was previously carried on by Jim.
43.Subsection (4)(a) provides that P is to be taken, for the purposes of subsection (3), to begin to carry on a business on another person ceasing to carry on such activities if the business begins to be carried on by P otherwise than in partnership on such activities ceasing to be carried on by persons in partnership.
Example
John and Paul are dentists, practising in partnership. They fall out and dissolve their partnership, dividing their practice and its patients between themselves and both now carry on their professions alone. Neither Paul nor John is carrying on a new business, as each is carrying on a profession whose activities were previously carried on by them in partnership.
44.Subsection (4)(b) provides that P is to be taken, for the purposes of subsection (3), to begin to carry on a business on another person ceasing to carry on such activities if P is a partnership which begins to carry on the business on such activities ceasing to be carried on –
by a person or persons otherwise than in partnership,
by a partnership not consisting only of all the persons constituting P, or
partly as mentioned in sub-paragraph (i) and partly as mentioned in sub-paragraph (ii).
Example
Alan, Ben, Charles and David are partners in an accountancy firm. Ben wishes to retire. The firm is expanding, and the remaining partners decide to admit 2 new partners, Ellen and Frances. The partnership also buys the business of another accountant, George, who also wishes to retire. The new business carried on in partnership by Alan, Charles, David, Ellen and Frances is not a new business. The activities of the business were previously carried on by a combination of (1) a partnership of different constitution than the current partnership (being the one carried on by Alan, Ben, Charles and David), and (2) a person otherwise than in partnership (the business carried on by George).
45.Subsection (5) provides that P will not be starting a new business if (a) before beginning to carry on a business, P enters into arrangements under which P may at any time during the relevant period carry on as part of the business activities carried on by another person, and (b) the business would have been prevented by subsection (2)(b) from being a new business if P had been undertaking the activities at the time he started his business, and the other person at that time had ceased to carry them on.
46.The intended effect of this provision is that a person will be prevented from enjoying a holiday if, before beginning to carry on a business, the person enters into arrangements that mean that at some point after the person’s business has started he may undertake activities carried on by another business and, had the person been undertaking those activities at the time the business was started, a holiday would not have been allowed.
Example
A partner in a firm of solicitors handles all the divorce work. He breaks away from the firm and makes an arrangement with the firm that, if his new firm does not prosper, he will be entitled to buy the divorce business of the old firm. His new firm advertises for new divorce work but is only moderately successful. So, he exercises his option to buy the divorce business from the old firm. By virtue of the “arrangements” rule, the partner’s new firm will not count as a “new” business.
47.Subsection (6) defines the meaning of “business” for the purposes of section 5. A business means something which is -
a trade, profession or vocation for the purposes of the Income Tax Acts or the Corporation Tax Acts,
a property business, as defined in section 263(6) of the Income Tax (Trading and Other Income) Act 2005, or
an investment business, which means a business consisting wholly or partly of making investments.
48.A charity which starts to trade will also fall within the definition whether or not it is carrying out trading activities with a view to profit.