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HMRC internal manual

Company Taxation Manual

Corporation Tax: loss-buying: trading activities becoming small or negligible

CTA10/S673 (3) was designed to prevent the carry forward of CTA10/S45 losses in cases where a company’s trade was dying or had, for all practical purposes died, but it was difficult to persuade tribunals to find it had actually ceased and become a dormant shell.

This difficulty arose because such companies could claim that they were still holding themselves out for business as argued in Kirk & Randall Ltd v Dunn (1924) 8TC663 and Robroyston Brickworks Ltd v CIR (1976) 51TC230. A company would be bought in that state and new activities introduced to it in such a way that it could be argued that the original trade had been revived.

CTA10/S673 (3) applies where, when the ownership of a company changed, the scale of its trading activities had become small or negligible. It does not apply where a considerable revival of a trade took place before the change in ownership.

The deterrent effect of CTA10/S673 (3)) means that cases of this kind are now uncommon. Where consideration is being given to invoking CTA10/S673 (3) consideration should also be given to the possibility of arguing that the trade had ceased.