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HMRC internal manual

Company Taxation Manual

HM Revenue & Customs
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Corporation Tax: loss-buying: profit-buying

CTA10/S674 (1)

CTA10/S674 (1) is an anti-avoidance measure that deters companies from exploiting carry-back of losses under CTA10/S37 or S42.

It is aimed at the abuse known as ‘profits buying’ or ‘loss capacity buying’ whereby a trading company with large profits is sold to new owners who feed new activities into the trade which will result in heavy initial losses for which early relief would not otherwise be available. These losses could be created or augmented, for example by arranging for the bought in company to acquire a large asset qualifying for capital allowances.

CTA10/S674 (1) applies where:


  • within any period of three years there is both a change in the ownership of a company (CTM06340 and CTM06350) and a major change in the nature or conduct of a trade carried on by the company (CTM06370 and CTM06380),


  • there is a change in the ownership of a company at a time when the scale of its trading activities has become small or negligible (CTM06390).

It uses the same basic criteria as the ‘loss-buying’ rules at CTA10/S673, which cancel the carry forward of CTA10/45 losses.

If the conditions of CTA10/S673 are satisfied, relief under CTA10/S37 and S42 for losses arising after a change of ownership of a company cannot be set against profits arising before the change in ownership.

Profits or losses for the accounting period in which the change in ownership occurs should usually be apportioned on a time basis. But where this gives an unreasonable or unjust result CTA10/S674 (5) allows the use of alternative methods (CTM06420).