CTM06005 - Corporation Tax: company reconstructions: without change in ownership - general
CTA2009/S41 & CTA2010/S938
Where a company transfers a trade to someone else, including another company, CTA2009/S41 treats the trade as if it had ceased in the hands of the transferring company. This means the consequences of cessation apply when you compute income from that trade chargeable to CT. The commencement or cessation of a trade is dealt with at CTM02100.
However, when a trade, or part-trade, is transferred between companies in common ownership, CTA2010/S938:
- preserves relief for Section 45 losses, and
- allows capital allowances to go forward as if the trade had not been transferred.
Section 938 only applies to transfers between companies. It does not apply to the transfer of a trade or part-trade to an individual or partnership of individuals.
For Section 938 to apply:
- there must be a transfer of a trade or part-trade as set out at CTM06060 or CTM06070, and
- the companies concerned must be in common ownership as explained at CTM06010 to CTM06030.
The full consequences of the application of Section 938 are in CTM06110.
Notes
A company does not have to claim Section 938 treatment because it is mandatory.
Section 938 has often been exploited in attempts to transfer losses to unconnected companies. There is a discussion of the method used and possible counteraction at CTM06210.
Where losses are transferable under Section 938 they may still be restricted or cancelled altogether by the relevant liabilities restriction. This is described at CTM06250 onwards.
Section 938 applies only to trading profits. It does not apply to property income.
