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HMRC internal manual

Company Taxation Manual

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HM Revenue & Customs
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Corporation Tax: management expenses: company status - cessation of trade

A trading company that happens to be left with income-yielding assets after the cessation of its trade does not automatically become an investment company (or ‘company with investment business’). See Carpet Agencies Ltd v CIR 38TC223. It will only become an investment company (or ‘a company with investment business’) if there is evidence that it has a business and that that business or (for periods starting on or after 1 April 2004) part of its business will be the making of investments.

If you have a case where:

  • trading ceases, and
  • funds are held on deposit pending the liquidation of the company, or in the period between trades,

you should normally argue that the company is not an investment company or ‘company with investment business’. The comments of Lord Denning in E Y L Trading Co Ltd v CIR 40TC386 at page 399 support a restrictive view of an ‘investment’ business. He said the mere provision of cash at the bank pending its subsequent use is not the ‘holding’ of investments…something much more in the nature of a business activity is needed.

However, what a company may intend is not always clear cut. If a company:

  • can demonstrate an intention to make investments,

and, for example,

  • holds money on deposit for some time,

you may have to concede that it comes within ICTA88/S130.

In spite of Lord Denning’s comments,

  • money placed on deposit at a bank, or, for example,
  • lent out to subsidiaries as an investment,

may be enough to bring a company within Section 130 depending on the facts.

This view can be justified by Lord Sterndale’s remarks at pages 524 to 525 of The Gas Lighting Improvement Co Ltd 12TC503.