CTM06505 | Corporation Tax: company purchase schemes: introduction and signposts
From HM Revenue & Customs · Company Taxation Manual
to S717
to S717 were introduced, before being rewritten to , by and designed to counter the use of "company purchase schemes" to avoid the payment of Corporation Tax (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 On the assumption that the arrangements would be successful the new owner would then arrange for the cash to be withdrawn.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 were effective the exchequer ends up with no tax. But if they are found to be ineffective HMRC would anyway 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. to S718 (as ICTA88/S767AA), was introduced by 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
and for more on to S717;
and for more on to S718;
for guidance on the relevant information powers, now in (but before 1 April 2009 in ICTA88/S767C);
for guidance on contacting BAI (Technical).