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HMRC internal manual

Business Income Manual

Businesses: mergers: cessation of previous businesses and commencement of new business

At the ‘merger’ of business A and business B a new business (business C) may be created which is entirely different in nature to either business A or business B.

In such circumstances, as a question of fact, the two original businesses have ceased and an entirely new business commenced.

The normal cessation rules apply both to business A and to business B and the normal commencement rules to business C.

This means that partners in businesses A and B will crystallise their overlap relief in relation to both their ‘notional trade’ in terms of their trading profits and their ‘notional business’ (if they have one) in terms of their other untaxed partnership income. These persons then become partners in business C and are taxable on the trading profits and untaxed income of that new partnership on an actual basis, from the date of commencement to 5 April.

These concepts are discussed in the following pages:

  • for the concept of the notional trade, see BIM82255 
  • for the commencement and cessation of the notional trade, see BIM82260 
  • for overlap relief in relation to the notional trade, see BIM81075 onwards (the same principles apply to partners with notional trades as they do to sole traders)
  • for the notional business of untaxed income and when this commences and ceases, see BIM82295 
  • for overlap relief in relation to the notional business, see BIM82310.

In some cases this will mean an acceleration of the income taxable in the tax year in which one business ceases and the other begins. This is because both the trading profits (and other untaxed partnership income) to the date of cessation and the trading profits (and other untaxed partnership income) from commencement to 5 April are deemed to arise in the same tax year for tax purposes.

If it is contended that the merger of two or more businesses of the same nature results in commencement of a new business and the cessation of the old businesses, the case should be submitted to CTISA (Technical).

Trading losses

Any trading losses arising in the tax year of cessation are dealt with under general principles (see BIM85055). Any trading losses brought forward which cannot be used under the terminal loss provisions are lost.