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HMRC internal manual

Company Taxation Manual

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ACT: set-off against CT on profits: capacity buying: meaning of 'major change'

ICTA88/S245 (1)(a), (4) & (5)

A ‘major change in the nature or conduct of a trade or business’ was not defined exhaustively but ICTA88/S245 (4) said it includes:

  1. a major change in the type of property dealt in, or services or facilities provided, in the trade or business (see CTM06370), or
  2. a major change in customers, outlets or markets of the trade or business (see CTM06370), or
  3. a change whereby the company ceases to be a trading company and becomes an investment company,

or vice versa, or

  1. where the company was an investment company, a major change in the nature of the investments held by the company.

For these purposes, a ‘trading company’ was a company whose business consisted wholly or mainly of the carrying on of a trade or trades and an ‘investment company’ was a company (other than a holding company) whose business consisted wholly or mainly in them making of investments and the principal part of whose income was derived there from. A holding company’ was a company whose business consisted wholly or mainly in the holding of shares or securities of companies which were its 90% subsidiaries and which were trading companies - a 90% subsidiary is defined at ICTA88/S838 (1)(c).

Section 245 (1)(a) provided a three-year period of comparison in which to establish amajor change’. In theory that could be for any period as long as it included the date on which the change in ownership of the company occurred.

In most cases the relevant changes to the trade or business were made after the change in ownership, but in some it may have been possible for the prospective ACT-buyer to arrangefor changes to be made before he or she acquired the company’s shares. Section 245 (4) went further by including in the comparison the effect of gradual processes of change that began before the three-year period. It should also be borne in mind that it may have been easier to establish a clearer picture of the ‘original’ trade or business by selecting a starting point some time before the change in ownership.

As regards Section 245 (4)(d) a ‘major change in the nature or conduct of a trade or business’ included, where the company was an investment company, a major change in the nature of the investments held by the company. A change from investment in real property to investment in shares or securities or vice versa was regarded as a ‘major change’. On the other hand, what was no more than a change from investment in one type of real property to another or changes in a portfolio of shares and securities would not have been regarded as a ‘major change’.

The above guidance should be read together with SP10/91, which is reproduced at CTM06380.