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HMRC internal manual

Business Income Manual

HM Revenue & Customs
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Computing the amount to assess: business changes: succession and changes in ownership: mergers

Two businesses under separate ownership may be merged to form a single business under one ownership. Common examples are:

  • two sole traders coming together to carry on business in partnership, and
  • two existing partnerships merging.

Where this happens, depending on the facts, there are three possibilities.

  1. The new business is a completely new trade, different from the two components (BIM80595)

The two businesses could be so different in nature from each other that what results from their combination is a new business different from both of them (George Humphries & Co v Cook [1934] 19TC121). So both businesses are permanently discontinued and a new trade commences. This is likely to be rare.

  1. One business is absorbed into the other

The owner of one business may merely acquire the assets of another business and absorb them into their existing business activities. So one business continues as the same trade and the other is permanently discontinued.

  1. The new business is a genuine merger

The two could be businesses carrying on the same sort of activities. If so the resulting new business has succeeded to both its component parts. Whether or not the commencement or cessation provisions will apply depends upon the ownership of the two old businesses and the new merged business (see BIM82260).