CG53120 - Substantial shareholdings exemption: the trading company/group/subgroup requirements - dealing with requests for opinions on the trading status of companies, groups and subgroups

TCGA92/SCH7AC/PARA20, TCGA92/SCH7AC/PARA21 & TCGA92/SCH7AC/PARA22

Companies may want some confirmation that they qualify as trading companies, that the groups they head are trading groups, that they are the holding company of a trading group or that a company they hold shares in is a trading company or the holding company of a trading subgroup. If a company asks you about the status of some other company you should bear in mind the duty of confidentiality you owe to all taxpayers. Normally companies who want to know about the status of other companies should approach those companies for this information.

You may receive enquiries from companies that want confirmation of their own status. This may be because they are about to make a disposal and want to know if they qualify as an investing company, or because some other company has asked them about their status for some reason. There is no formal clearance procedure under which companies can have their status confirmed. The status of a company, group or subgroup is a question of fact but may alter as the balance of their activities changes, so it will not be possible to confirm a company's status for future periods.

On 21 May 2002, during the debate on the substantial shareholding exemption, the Economic Secretary to the Treasury explained that, where there was genuine uncertainty, a company could seek an opinion from HMRC under Code of Practice 10 as to its trading status, including its meaning within Schedule 7AC TCGA 1992. (5th Sitting Standing Committee F; Hansard column 161).

Code of Practice 10 says that if there is genuine uncertainty about HMRC's interpretation of the law (including its application to a proposed transaction) we will advise upon the interpretation of legislation passed in the last four Finance Acts. What is now embodied in Schedule 7AC TCGA 1992 was originally enacted in 2002 so following the Royal Assent to Finance Act 2006 on 19 July 2006, that period (extended slightly because two Finance Acts were enacted in 2005) has now passed. Consequently from that date the facility is no longer available.

A company (the investing company) may want to establish whether another company (the company invested in) in which it held shares (or interest in shares or assets related to shares) which they have now disposed of, was a qualifying company. In the first instance the investing company should seek advice from the company invested in. That company will usually be able to say if its activities were such that it was a trading company, the holding company of a trading group or trading subgroup within the meaning of the legislation. The investing company will need to take a view (in conjunction with the guidance at CG53110 to CG53119) and prepare their return on that basis in accordance with ordinary self-assessment principles.