CTM06110 - Corporation Tax: company reconstructions: without change in ownership - effects
CTA2010/S944 and S948. ,
When the conditions of ICTA88/S939 are satisfied there are modifications to the normal cessation and commencement treatment of:
- capital allowances,
- trading losses carried forward,
- trading losses carried back,
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 948
Section 948 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 is 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 948 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 944
Any unused trading losses of the predecessor are allowed against the successor's future income from the same trade or part-trade under CTA2010/S45. The amount available is the loss that remains after:
- any CTA2010/S37 or group relief claims in respect of the predecessor's loss,
and
- 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 45, 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 938 to other company partnership situations can be obtained, if required, from CTIAA (Technical).
Trading losses carried back: Section 944(2)
Note that Section 944(2) disapplies the rule at Section 39 which normally allows a carry back of up to three years on cessation. The usual 12 month carry back limit at Section 37 therefore applies.
