CTM08070 | 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 a‘company with investment business’. See Carpet Agencies Ltd v CIR (1958) 38TC223. It will only become ‘a company with investment business’ if there is evidence that it has a business and that that business or part of its business will be the making of investments.

In circumstances where

• trading ceases, and

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

it should not normally be argued that the company is a ‘company with investment business’. The comments of Lord Denning at page 399 in EYL Trading Co Ltd v CIR (1962) 40TC386 support a restrictive view of an ‘investment’ business. His Lordship 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

it may come within CTA09/S1218B.

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 S1218B depending on the precise facts.

This view can be justified by Lord Sterndale's remarks at pages 524 to 525 of Gas Lighting Improvement Co Ltd v CIR (1923) 12TC503.