In Leekes Ltd v HMRC [2018] EWCA Civ 1185 the Court of Appeal agreed that corporation tax losses brought forward from a transferred trade could not be used against the future profits of the successors enlarged trade.
Prior to April 2017 Corporation tax trading losses brought forward could only be used against profits of the same trade.
Under s343 ICTA 1998 (s944 CTA2010 from 1 April 2010):
- Where a trade is transferred between two companies without a change of ownership the brought forward losses of the predecessor company may be transferred to the successor company.
In 2009 Leekes Ltd, which ran out of town department stores, purchased the entire share capital of Coles for £1.
- Coles had brought forward losses of over £3million.
- Leekes hived up the Cole trade and ran the two businesses as a single trade leaving Coles dormant.
- Leekes claimed relief for £1.6million of the brought-forward losses against the total profits of the enlarged business for the year ended 31 March 2010.
The First Tier Tribunal had agreed with Leekes that the losses could be used; this was overturned on appeal by the Upper tribunal; whilst the conditions of s343 had been met, the profits had to be streamed and the brought forward losses could only be used against the profits of the Coles trade.
The Court of Appeal agreed with the analysis of the UT and dismissed the appeal, stating that:
- The wording of s343 is clear and unambiguous. The successor steps into the shoes of the predecessor, and cannot obtain more relief than the predecessor could have done, had it continued to carry on the business. Otherwise the vendors of Coles would have missed out, having sold for only £1 whilst Leekes would have benefitted from £1.6million of loss relief.
- The possibility of claiming relief under section 343 should be apparent to any well-advised company when it acquires the business of a predecessor and merges it with its own business, meaning that the need for careful record keeping to stream the future profits is “hardly an onerous requirement”.
Links
Losses: trading and other losses
Leekes Ltd v HMRC [2016] UKUT 0320 UT decision
External link:
Leekes Ltd v HMRC [2018] EWCA Civ 1185
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