Corp Tax - Chapter 16 Flashcards

1
Q

Why do the anti avoidance rules exist?

A

To prevent a company carrying forward its trading losses when there has been a change in ownership.

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2
Q

Change in ownership criteria:

A

Within three years a single person acquires more than 50% of the share capital.

Or two or more acquire 5%, and together owns 50%.

If they join a group = change in ownership

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3
Q

Exemptions to CIO

A

a. an acquisition of shares under a Will or on intestacy; or

b. an unsolicited gift of shares

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4
Q

Major changes in trade (Time)

A

Five Year period (Three years before - upto 5 years after)

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5
Q

Any major changes during the years result in…

A

Anti avoidance provision.

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6
Q

Statement of Practice 10/91 - Allowed changes

A
  • changes to keep pace with new technology;
  • the adoption of new management techniques;
  • improvements in efficiency of the company (including certain redundancies);
  • rationalisation (including the dropping of unprofitable product lines)
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7
Q

Small or negligible trades

A

Anti avoidance applies, if small before and large afterwards.

Five year restriction does not apply, any years will cause anti-avoidance.

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8
Q

Effect of anti-avoidance.

A

Prevents trading losses from being carried forward,

Losses are blocked forever.

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9
Q

Major change in business include:

A

i. a major change in the nature or conduct of any trade or business carried on
by the company;

ii. a major change in the scale of any trade or business carried on by the
company;

iii. beginning or ceasing to carry on a particular trade or business

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10
Q

If there is no major change in business, how long before the losses are unblocked?

A

5 years.

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11
Q

CIO of Investment Business anti avoidance if…

A

The anti-avoidance rules apply to a company with an investment business if there is a change in ownership, and:

  • within five years after the change in ownership there is a significant increase in
    the company’s capital; or
  • within the eight-year period beginning three years before the change of
    ownership there is a major change in the nature or conduct of the business; or
  • the change of ownership occurs at any time after the activities became small
    or negligible, and before a significant revival of the business.
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12
Q

Significant increase in
the company’s capital:

A
  • an increase of at least £1 million from the pre-change capital; and
  • the post-change capital has increased to at least 125% of the pre-change
    capital
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