VCM15070 - Trading requirement: trading companies

ICTA/S293 (2); ITA/S181; ITA/S290

ICTA/S576 (4); FA00/SCH15/PARA23

If the company does not meet the trading requirement as a parent company it must exist wholly for the purpose of carrying on a qualifying trade or trades. The purposes for which a company exists fall to be ascertained primarily by reference to what, through its directors and employees, it actually does, and not, for example, by reference to the intentions of those who originally formed it. A new company whose directors are actively engaged in setting up a trade should not be regarded as failing to satisfy the rule merely because it is not yet trading and a large part of its funds is temporarily being held on deposit. However, the making of investments which are less easily realisable is likely to lead to the conclusion that the company exists for investment purposes, even if there is an intention to trade at a later date.

The cessation of trading, other than an involuntary and temporary cessation caused by some eventuality such as a fire, will normally mean that the company ceases to exist for the purpose of carrying on a trade. But there is no reason why the company should not cease one trade and begin another, provided the interval between the two activities is brief. As regards a cessation of trading caused by the company's becoming insolvent, see VCM15080 and VCM15090.

The wording of the provision allows us to disregard any trivial or incidental activity.