Corp Tax - Chapter 16 Flashcards
Why do the anti avoidance rules exist?
To prevent a company carrying forward its trading losses when there has been a change in ownership.
Change in ownership criteria:
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
Exemptions to CIO
a. an acquisition of shares under a Will or on intestacy; or
b. an unsolicited gift of shares
Major changes in trade (Time)
Five Year period (Three years before - upto 5 years after)
Any major changes during the years result in…
Anti avoidance provision.
Statement of Practice 10/91 - Allowed changes
- 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)
Small or negligible trades
Anti avoidance applies, if small before and large afterwards.
Five year restriction does not apply, any years will cause anti-avoidance.
Effect of anti-avoidance.
Prevents trading losses from being carried forward,
Losses are blocked forever.
Major change in business include:
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
If there is no major change in business, how long before the losses are unblocked?
5 years.
CIO of Investment Business anti avoidance if…
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.
Significant increase in
the company’s capital:
- 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