CTM06010 - Corporation Tax: company reconstructions: common ownership
CTA2010/S941
Section 938 applies where there is a transfer of a trade (or part-trade) and the companies concerned are in common ownership.
Section 941 defines a test of common ownership between the predecessor and successor companies in terms of ownership of the transferred trade. CTA2010/S942 (1) extends this to the ownership of the ordinary share capital (defined in CTA2010/S1119) of the companies concerned. The requisite degree of common ownership is 75%. Tests of ownership and CTA2010/S942 are dealt with at CTM06020.
If the conditions at Section 940 (a) & (b) are met then Section 944 applies, modifying the normal cessation and commencement rules (CTM06110).
75% test
Section 941 provides that there is common ownership of a trade if the same person or persons owned at least 75% of the trade both:
- at some time within one year before the transfer of the trade, and
- on or at any time within two years after that transfer.
Section 941 does not lay down any minimum period throughout which the predecessor and successor companies must be in common ownership. There is guidance on this at CTM06210.
For the guidance on the interpretation of ‘persons’ for the purposes of CTA2010/S938, see CTM06020.
Company must be within charge to CT
Section 943 contains the condition that throughout the period defined in Section 941 subsection (1) the trade must have been carried on by a company or companies within the charge to CT.
This definition brings within the scope of Section 938 companies that are:
- non-resident, and
- chargeable to CT in respect of a trade carried on in the UK through a branch or agency.
There is guidance on non-resident companies generally at CTM34200 onwards.
Part Trades
The common ownership test is defined in terms of a trade. Note that the same rules apply when only partof a trade is transferred - see in particular CTM06060, CTM06120 and CTM06130.
