CTM06060 - Corporation Tax: company reconstructions: transfers of trade

ICTA88/S343 (1) & ICTA88/S343 (8)

For ICTA88/S343 to apply there must be a transfer of either a trade or part of a trade between the companies concerned. ICTA88/S343 (1), as extended by ICTA8/S343 (8), covers four situations as follows:

The scope of Section 343 (1) and (8) was discussed in Falmer Jeans Ltd v Rodin 63TC55.

Section 343 may also apply where:

• a company ceases to carry on a trade,

• thereafter another company carries on part of that trade either as its trade or as part of its trade.

Succession

Section 343 (1) applies in the first situation above. This is where a company ceases to carry on a trade and another company begins to carry it on. For a transfer of a trade to fall within this first category there must be succession to the trade. There is guidance on succession at BIM70620 onwards.

There is succession, and (in this respect) Section 343 (1) is satisfied, when the purchaser takes over enough of the vendor's trading activities for it to be established that the purchaser is carrying on the same trade. This is shown by:

• the 'substance' view of succession in Malayalam Plantations Ltd v Clark 19TC314, and
• the approach of looking at the realities of the situation in Wadsworth Morton Ltd v Jenkinson 43TC479, a case which concerned the IT ancestor of Section 343.

Succession can also occur when the purchaser merges the transferred trade with an existing trade of its own. provided that the trading activities formerly carried on by the vendor are still being carried on in an identifiable form as in Briton Ferry Steel Co Ltd v Barry 23TC414.

Activities of a trade

Section 343 (8) applies in the second situation above. This is where:

• a company ceases to carry on a trade,

• another company begins to carry on the activities of that trade as part of its trade.

It was decided in the Falmer Jeans case that this second category covers cases where the trade was transferred but the 'identifiable form' test was not met. In the case of Laycock v Freeman, Hardy and Willis Ltd 22TC288 the 'identifiable form' test was not met. It is not necessary that the purchaser carries on all the activities.

The first leg of Section 343 (8) applies if:

• enough activities are taken over to form a separate trade,

• if the purchaser treats those activities as a separate trade, they are in fact the same trade the vendor formerly carried on.

Activities of a part of a trade

Section 343 (8) also applies in the third and fourth situations above. These third and fourth categories are required because there cannot be succession to part of a trade (BIM70640). The conditions of Section 343 are not satisfied where mere assets or activities that do not amount to part of a trade are transferred.

There is no definition of 'part of a trade' in the Act. But you can regard it as a severable part of a company's trading activity that is capable of:

• being a free-standing apparatus,

• making profits or losses in its own right.

It does not have to amount to anything as distinctive as a branch or division.