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HMRC internal manual

Company Taxation Manual

Corporation Tax: company purchase schemes: introduction and signposts

CTA10/S706 to S717 (formerly ICTA88/S767A & ICTA88/S767B)

CTA10/S706 to S717, formerly ICTA88/S767A and S767B, was introduced by FA94/S135 and is designed to counter the use of company purchase schemes to avoid the payment of CT. In a typical case a profitable company would be stripped of its trade or business, usually by way of transfer to another member of its group, leaving it only with sufficient cash to settle its outstanding CT. The company would then be sold - for a sum equivalent to a proportion of the tax outstanding - to a third party (often non-resident) who would arrange for the company to participate in arrangements intended to reduce the tax liability to nil. On the assumption that the arrangements would be successful the new owner would then arrange for the cash to be withdrawn.

If the avoidance arrangements are effective the Exchequer ends up with no tax. But if they are found to be ineffective HMRC would have little or no prospect of securing payment of the tax unpaid because the company would have been left with no funds.

Subsequently alternative schemes were developed which attempted to find ways around the 1994 legislation. For example, as that legislation only applied to tax liabilities for accounting periods beginning before the change in ownership, the new schemes ensured that the tax liability crystallised in an accounting period beginning after that date. They did this by using provisions such as rollover relief that postponed the tax charge or other provisions that involved income or gains being taxed in periods other than that in which they accrued. ICTA88/S767AA, now CTA10/S713 to S718, was introduced by FA98/S114 to counter these new schemes in relation to changes in ownership on or after 2 July 1997.

Under the legislation, on the assumption that the conditions are satisfied, HMRC is able to collect the tax that was outstanding from the persons who previously controlled the company or, alternatively, other companies under their control.

  • See CTM06510 and CTM06520 for more on CTA10/S706 to S717 (formerly ICTA88/S767A and ICTA88/S767B).
  • See CTM06530 and CTM06540 for more on CTA10/S713 to S718 (formerly ICTA88/S767AA).
  • See CTM06550 for guidance on the ICTA88/S767C information powers prior to 1 April 2009. These are now in the general information powers provision FA08/SCH36.
  • See CTM06560 for guidance on contacting CTIAA (Technical).