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HMRC internal manual

Company Taxation Manual

HM Revenue & Customs
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Corporation Tax: computation of income: special rules: commencement and cessation of trade

CTA09/S41(2) and SCH1/PARA520 (3) (formerly ICTA88/S337 (1))

Where a company begins to carry on a trade, the company’s income from the trade is computed as if the trade had commenced, even though it may previously have been carried on by another person. Where a company ceases to carry on a trade the company’s income from the trade is computed as if the trade had discontinued, even though it may continue to be carried on by another person.

This means the special rules on commencement or discontinuance of a trade apply. These rules also apply where a company begins or ceases to be within the charge to CT in respect of a trade.

Examples of the special rules are:

  • CTA09/S162 +, formerly ICTA88/S100, on valuation of trading stock on discontinuance of a trade
  • CTA09/S55(2), formerly ICTA88/S89, on debts proved to be irrecoverable after discontinuance of a trade, and
  • CTA09/S188 to S196 (trading income), CTA09/S280 to S285 (property income), formerly ICTA88/S103 to ICTA88/S110, on post cessation receipts and losses.

BIM42745 deals with irrecoverable debts and BIM80500 with post cessation receipts.

Any specific provision that a trade is not to be treated as permanently discontinued overrides the above general provision above.

A limited company which is re-registered under section 103 Companies Act 2006 as an unlimited company remains the same company, provided any changes in the Memorandum and Articles of Association are only those necessary for the re-registration. So if there is not a significant change in the nature of the company’s trade at the time of the re-registration, there is no question of a cessation or a new business. Therefore unused losses and capital allowances arising before the change are available for set-off against profits earned after that date.