OT21069C | Corporation Tax Ring Fence: Losses and Group Relief: Change in Company Ownership: HMRC’s approach to dealing with transactions

Where companies are seeking to enter into transactions the main purpose, or one of the main purposes of which is to gain a tax advantage, HMRC will consider all appropriate arguments in challenging those arrangements, and so this guidance cannot necessarily be relied upon.

The legislation in CTA10/Part14 is intended to prevent loss-buying. While the legislation is a mechanical, fact-based test, HMRC will not provide its view of the legislation where information suggests that loss-buying is the primary purpose of the transaction. The acquirer should be able to show that they are acquiring a genuine, viable and commercially carried on trade, albeit one which may require some changes before it can realise a profit. HMRC will also not provide its view of how the legislation applies where there is not a genuine commercial transaction under consideration.

Where there is not a genuine, commercial trade being carried on, or the only real asset of the company being acquired are the brought forward losses, HMRC may consider whether the trade has become small and negligible, meaning CTA10/S673(3) may be in point.