CG17953 - Taper relief: business asset: definitions

TCGA92/SCHA1/PARA22, TCGA92/SCHA1/PARA23, TCGA92/SCHA1/PARA24

TCGA92/SchA1 paras 22-24 contains definitions of various terms used in Schedule A1 for taper relief purposes.

- FULL-TIME WORKING OFFICER OR EMPLOYEE

A full-time working officer or employee in relation to any company is an individual or an eligible beneficiary who:

and

- RELEVANT CONNECTION

One company has a relevant connection with another at any time when they are both members of the same group of companies or of the same commercial association of companies.

From 6 April 2000, TCGA92/SchA1 paras 24 broadens the range of companies that are treated as having a relevant connection with each other where joint enterprise companies are concerned, see CG17952a.

- COMMERCIAL ASSOCIATION OF COMPANIES

A commercial association of companies is a company together with such of its associated companies (within the meaning of ICTA88/S416) as carry on businesses which are of such a nature that the businesses of the company and the associated companies, taken together, may be reasonably considered to make up a single composite undertaking.

- NON-TRADING COMPANY

A company which is not a trading company and is not a unit trust scheme, notwithstanding anything in TCGA92/S99.

- NON-TRADING GROUP

A group of companies which is not a trading group and is not a unit trust scheme (notwithstanding anything in TCGA92/S99).

- TRADE

The following are trades for the purposes of taper relief:

and

Activities, such as farming, that are treated as a trade by ICTA88/S53, are trades for the purposes of the Income Tax Acts.

- TRADING COMPANY

For periods before 17 April 2002:

A trading company is a company which is either:

or

For periods from 17 April 2002:

A trading company is a company carrying on trading activities whose activities do not include to a substantial extent activities other than trading activities, see definition of "trading activities" below and CG17952c.

- TRADING ACTIVITIES of companies

For a company, and periods from 17 April 2002, TCGA92/SCHA1/PARA22A defines this to mean activities carried on by the company:

i) is a trading company or the holding company of a trading group, and
ii) if the acquiring company is a member of a group of companies, is not a member of that group, see CG17952c.

Activities only count as trading activities if the acquisition is made, or the company starts to trade, as soon as is reasonably practicable in the circumstances.

• TRADING ACTIVITIES of groups

For groups of companies, and for periods from 17 April 2002 TCGA92/SchA1 paras 22B defines this to mean activities carried on by the company or a member of the group.

1. in the course of, or for the purposes of, a trade being carried on by it/any member of the group,
   
   
2. for the purposes of a trade that it/any member of the group is preparing to carry on,
   
   
3. with a view to its/any member of the group acquiring or starting to carry on a trade, or
   
   
4. with a view to its/any member of the group acquiring a significant interest in the share capital of another company that -
   
   

(i) is a trading company or the holding company of a trading group, and
(ii) ) if the acquiring company is a member of a group, is not a member of that group.

However, activities within (c) and (d) count as trading activities only if the company or group member starts to carry on the trade, or acquires the shares, as soon as is reasonably practicable in the circumstances. For the purposes of (d) a significant interest is such an interest as would make the company acquired a member of the same group as the acquiring company, or would result in the acquiring company having a qualifying shareholding in a joint venture company without making the two companies members of the same group (see CG17953a and paragraph 23 of Schedule for definitions of qualifying shareholding and joint venture company).

Trading activities

The word 'activities' is not defined in the statute but in this context you should interpret it to mean what a company does. Activities will therefore include engaging in trading operations, making and holding investments, planning, holding meetings and so forth. The legislation makes explicit that a company may have trading activities both when it is trading and before it commences to trade.

- SIGNIFICANT INTEREST for companies

A company acquires a significant interest in another company when the other company becomes a 51% subsidiary of the acquiring company, or it amounts to an acquisition of a qualifying shareholding in a joint venture company.

• SIGNIFICANT INTEREST for groups

A company acquires a significant interest in another company when the other company becomes a member of the same group of companies as the acquiring company, or it amounts to an acquisition of a qualifying shareholding in a joint venture company without that company becoming a member of the same group of companies as the acquiring company.

• HOLDING COMPANY

For periods to 16 April 2002

A holding company is a company whose business (disregarding any trade carried on by it) consists wholly or mainly of the holding of shares in one or more companies which are its 51 per cent subsidiaries, see CG17952.

For periods from 17 April 2002

A holding company is a company that has one or more 51% subsidiaries.

- TRADING GROUP

For periods to 16 April 2002

A trading group is a group of companies the activities of which (if all the activities of the companies in the group are taken together) do not, or not to any substantial extent, include activities carried on otherwise than in the course of, or for the purposes of, a trade, see CG17952b.

For periods from 17 April 2002

TCGA92/SchA1 paras 22B(1) defines what is a trading group. The definition parallels that of a trading company so that:

a trading group means a group of companies one or more of whose members carries on trading activities and the activities of whose members, taken together, do not include to a substantial extent activities other than trading activities (see CG17953c)

The activities of the members of a group are treated as one business. Intra-group activities (including trading activities) are disregarded for the purpose of determining whether the group is a trading group. So, for example, where one group company lets a property to another group company, the letting activity would be disregarded for this purpose. However, this netting off approach does not extend to transactions with joint venture companies that are not members of the group. So, letting property to such a joint venture company would count as an activity of the lessor.

- GROUP OF COMPANIES

A group of companies is a company which has one or more 51 per cent subsidiaries, together with those subsidiaries.

- UNLISTED COMPANY

An unlisted company is defined by TCGA92/SchA1 paras 22 as meaning a company none of whose shares is listed on a recognised stock exchange, see CG50275, and which is not a 51 per cent subsidiary of a company whose shares, or any class of whose shares, is so listed.

- ORDINARY SHARE CAPITAL

Ordinary share capital is defined for the purposes of the Tax Acts (which includes the provisions relating to corporation tax) in ICTA88/S832(1) (this is applied for the purposes of Schedule A1 TCGA 1992 by TCGA92/SchA1 paras 22(1)). Some companies do not have ordinary share capital (e.g. some Limited Liability Companies in the United States, see Tax Bulletin 51). Such companies cannot therefore be 51% subsidiaries of other companies.

51% subsidiary

A 51% subsidiary is defined by reference to the meaning given ICTA88/S838 (see TCGA92/SchA1 paras 22(1)). A company is a 51% subsidiary of another company for taper relief if the second company owns directly or indirectly more than 50% of the ordinary share capital of the first company.