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HMRC internal manual

Company Taxation Manual

Particular topics: company winding up TAAR: condition C: ‘similar to’

ITTOIA05/S396B/404A (4)(a) – (d)


The four subsections of ITTOIA05/S396B (4) apply where the individual continues to be directly or indirectly involved with a trade or activity which is the same as, or is similar to, that of the company being wound up.


‘Similar trade or activity’

ITTOIA05/S396B/404A applies not only to distributions from companies carrying on a trade but also to companies carrying on an investment business and to a holding company of a trading group, for example.


‘Similar trade or activity’ is not further defined and is a deliberately wide-ranging term designed to prevent arguments that a new company is not carrying on “the same” trade as the wound-up company because of changes to the business model.


Example 1

Mr G is the sole shareholder in a company that provides a car-washing service. Mr G winds up that company, but continues to provide car-washing services through a partnership with his wife, but now also sells air-fresheners.


Clearly Mr G is carrying on the same trade, or at least a trade very similar to that carried out by the company, and so Condition C is satisfied.


Example 2

Mrs F is a landscape garden designer and runs her business through a company. Mrs F decides she would like to retire, and so winds up the company. In order to supplement her pension, and because she enjoys it, Mrs F continues to provide routine gardening services to a small group of clients in her local village as a sole-trader.


It is unlikely that Mrs F is carrying on “the same trade” after the winding up as that carried on by the company. However, the provision of gardening services is “similar to” the provision of landscape gardening, and so Condition C is met. (But that does not mean that ITTOIA05/S396B/404A will apply to the distribution, because all the conditions must be met, and it is not likely on these facts that Condition D – the purpose test – will be satisfied.)


Example 3

Mr E is a builder who runs his business through two companies – Company 1 specialises in loft conversions, and Company 2 specialises in extensions. Mr E winds up Company 1, but the trade of Company 2 continues.


As with Example 2, Mr E continues to be involved with a trade that is similar to that of the company that is wound up, and so Condition C is satisfied.


Example 4

Mrs D is a recruitment consultant who runs her business through a company. After three years of training part time, she winds up her company and starts a new company that offers her services as an IT consultant. Some of her new clients are businesses she dealt with in her previous company.


Although Mrs D is still a consultant, the trade has changed significantly and it is unlikely that it would be viewed as the same or similar to that carried on by the wound up company. It does not matter that she continues to deal with some of the same clients because the nature of the service she is providing is different. Even if it were argued that the work was similar consultancy support, it is unlikely that Condition D would be met in any event.