Corporation Tax: company reconstructions: without change in ownership - effects
CTA10/S944 and S948
When the conditions of CTA10/S940B are satisfied there are modifications to the normal cessation and commencement treatment of:
- capital allowances,
- trading losses carried forward,
- trading losses carried back,
Each of these is dealt with in turn below.
For all other purposes the normal cessation and commencement rules (see CTM02100) apply.
Capital allowances: CTA10/S948
CTA10/S948 deals with capital allowances. In the computations of both the predecessor and successor companies, the consideration given for the assets transferred with the trade or part-trade is ignored. The disposal value when the successor sells these assets is calculated as if the successor had always carried on the trade or part-trade inherited from the predecessor.
Guidance on the calculation of capital allowances for accounting periods in which the transfer takes place is at CA15400.
CTA10/S948 does not apply where the successor is a dual resident investing company. There is guidance on a dual resident investment company at CTM34620.
Trading losses carried forward: CTA10/S944
Any unused trading losses of the predecessor are allowed against the successor’s future income from the same trade or part-trade under CTA10/S45. The amount available is the loss that remains after:
- any CTA10/S37 sideways or group relief claims in respect of the predecessor’s loss,
- the application of the relevant liabilities restriction (CTM06250).
Where a company transfers its trade to a partnership of companies of which it is a member it can:
- carry forward its losses under CTA10/S45, and
- set them against its share of the partnership profits.
The same applies where a company partner begins to carry on the trade alone.
Advice on the application of CTA10/S940A to other company partnership situations can be obtained, if required, from CTISA (Technical) - see ‘Technical Help’ on the left bar.
Trading losses carried back: CTA10/S944(2)
CTA10/S944(2) disapplies the rule at CTA10/S39 which normally allows a carry back of up to three years on cessation. The usual 12 month carry back limit at CTA10/S37 therefore applies.