HMRC internal manual

Company Taxation Manual

Corporation Tax: small profits relief: whether trade or business carried on - decided cases

When considering whether companies are associated, whether a company is carrying on any trade or business is determined on an accounting period by accounting period basis. Where a company would be associated for part of an accounting period only, consideration is restricted to activity in that part.

Meaning of business for CTA10/S25 (3)

Most companies will either be trading or have a readily identifiable business. In the main, excluded companies will be:

  • wholly dormant companies
  • non-trading holding companies that meet specific conditions set out in CTA10/S26, formerly SP5/94 (see below)

On the question of contrasting trading and business the following principles from decided cases may be helpful.

### Case ### Dicta
CIR v The Marine Steam Turbine Co Ltd 12TC174 Rowlatt J said that the word business ‘has two distinct meanings. It may mean any particular matter or affair of serious importance …[or] in another and very different sense, as meaning an active occupation or profession continuously carried on, and it is in this sense that the word is used in the Act’ (p.179).
CIR v The Korean Syndicate Ltd 12TC181 In a Court of Appeal judgement Atkin LJ thought that if any emphasis were placed on the word ‘active’ it would unduly limit the meaning of the word ‘business’ saying ‘I am not sure that it was intended for a precise definition, but if it were so intended, I think the words [used by Rowlatt J in the Marine Steam Turbine case] would be too narrow … there is nothing in the Act which says that the business must be actively carried on’. Lord Sterndale MR emphasised the purpose for which the company was set up saying that ‘a limited company comes into existence for some particular purpose, and if it comes into existence for the particular purpose of carrying out a transaction … and turning [it] to account, then that is a matter to be considered when you come to decide whether doing that is carrying on a business or not’ (page 202).
American Leaf Blending Co Sdn Bhd v Director General of Inland Revenue [1978] 3 All ER 1185 Lord Diplock said, ‘in the case of a company incorporated for the purpose of making profits for its shareholders any gainful use to which it puts any of its assets prima facie amounts to the carrying on of a business … The carrying on of `business` no doubt, usually calls for some activity on the part of whoever carries it on, though, depending on the nature of the business, the activity may be intermittent with long intervals of quiescence in between’ (page 1189).