CTM06110 - Corporation Tax: company reconstructions: without change in ownership: effects

ICTA88/S343 (2), (3), (4A) & (5), and ICTA88/SCH30/PARA5 (9)

When the conditions of ICTA88/S343 are satisfied there are modifications to the normal cessation and commencement treatment of:

• capital allowances,
• trading losses carried forward,
• trading losses carried back,
• bond washing,
• transitional allowances for net annual value of trade premises.

Each of these is dealt with in turn below.

For all other purposes the normal cessation and commencement rules (see CTM02100) apply.

Capital allowances: Section 343 (2)

Section 343 (2) deals with capital allowances. In the computations of both the predecessor and successor companies, the consideration given for the assets transferred with the trade or part- trade are ignored. The disposal value when the successor sells these assets is calculated as if the successor had always carried on the trade or part-trade inherited from the predecessor.

Guidance on the calculation of capital allowances for accounting periods in which the transfer takes place is at CA15400.

Section 343 (2) does not apply where the successor is a dual resident investing company. There is guidance on a dual resident investment company at CTM34620.

Trading losses carried forward: Section 343 (3)

Any unused trading losses of the predecessor are allowed against the successor's future income from the same trade or part-trade under ICTA88/S393 (1). The amount available is the loss that remains after:

• any ICTA88/S393A or group relief claims in respect of the predecessor's loss,

• the application of the relevant liabilities restriction ( CTM06250).

Guidance on how losses are identified and allowed where the successor has an existing trade and/or the part-trade rules apply is at CTM06120 and CTM06130.

Where a company transfers its trade to a partnership of companies of which it is a member it can:

• carry forward its losses under Section 393 (1), and
• set them against its share of the partnership profits.

The same applies where a company partner begins to carry on the trade alone.

Advice on the application of Section 343 to other company partnership situations can be obtained, if required, from CT&VAT (Technical).

Trading losses carried back: Section 343 (4A)

Note that Section 343 (4A) disapplies the rule at Section 393(2A), which normally allows a carry back of up to three years on cessation. The usual 12 month carry back limit at Section 393A(2) therefore applies.

Bond washing: Section 343 (5)

For the purposes of ICTA88/S471 (only relevant for exchanges of securities made up to 31 July 1998), securities held as trading stock are treated as if they were sold by the predecessor at market value. Section 471 deals with the exchange of securities in connection with conversion operations and nationalisation.

There is guidance on countering bond-washing transactions at IM4330 onwards.

Transitional allowances for annual value of trade premises as a business expense

The successor takes over the predecessor's right to any transitional allowance under ICTA88/SCH30/PARA5.