CTM02100 - Corporation Tax: computation of income: special rules: commencement and cessation of trade

CTA09/S41(2) & Sch1para520(3) (formerly ICTA88/S337 (1))

Where a company begins to carry on a trade, you compute the company's income from the trade as if the trade had commenced, even though it may previously have been carried on by another person. Where a company ceases to carry on a trade you compute the company's income from the trade as if the trade had discontinued, even though it will be carried on by another person.

This means the special rules on commencement or discontinuance of a trade apply. You also apply these rules where a company begins or ceases to be within the charge to CT in respect of a trade.

Examples of the special rules are:

• CTA09/S162 onwards, formerly ICTA88/S100, on valuation of trading stock on discontinuance of a trade,
• CTA09/S55(2), formerly ICTA88/S89, on debts proved to be irrecoverable after discontinuance of a trade, and
• CTA09/Ss188 to 196, CTA09/Ss280to285, formerly ICTA88/S103 to ICTA88/S110, on receipts and losses accruing after a change in the persons carrying on a trade.

BIM42745 has guidance on CTA09/S55(2) (formerly ICTA88/S89) and BIM80500 onwards has guidance on CTA09/Ss 188 to 196 and CTA09Ss280 to 285 (formerly ICTA88/S103 to ICTA88/S110).

Note that any specific provision that a trade is not to be treated as permanently discontinued overrides the above general provision.

A limited company which is re-registered under Section 49 Companies Act 1985 as an unlimited company remains the same company, provided any changes in the Memorandum and Articles of Association are only those necessary for the re-registration. So if there is not a significant change in the nature of the company's trade at the time of the re-registration, there is no question of a cessation or a new business. Therefore unused losses and capital allowances arising before the change are available for set-off against profits earned after that date.