Leekes Ltd v HMRC – Upper Tribunal decision | KPMG | UK

Leekes Ltd v HMRC – Upper Tribunal decision

Leekes Ltd v HMRC – Upper Tribunal decision

The UT has overturned the earlier First-tier Tribunal decision in this case on corporate tax loss streaming.


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This case considered the old legislation in s343 ICTA 1988 which applied where a transfer of a trade took place between two members of a group of companies. The taxpayer involved transferred the whole of a loss making trade to another group company which already carried on a similar trade. The First-tier Tribunal (FTT) concluded that the losses brought forward from the trade transferred did not have to be streamed against profits of the transferred trade where there is only one combined successor trade post-transfer. HMRC appealed, and the Upper Tribunal (UT) has now overturned this decision, ruling in favour of HMRC.

There were specific rules within s343 which were admitted to restrict the utilisation of losses transferred so that they could only be offset against profits of the trade transferred in, commonly referred to as streaming rules. However, it was argued by the taxpayer that these specific rules did not apply as the whole trade was transferred rather than activities of the trade.

The UT agreed with HMRC’s interpretation of s343; that loss relief was limited to the profits the transferor would have made if it had continued to carry on the trade that was transferred. The drafting of the legislation did not give the loss-making business the right to set its losses against the profits of the larger successor trade. While streaming of losses was not specifically mentioned in this situation, the UT decided that this was due to the fact that there was no specific need to, as the transferor’s trade can be discretely identified as continuing (albeit as part of a larger trade) and profits from this trade can be sufficiently identified by careful record-keeping.


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