The Court of Appeal has dismissed the taxpayer’s appeal in this case on corporate tax losses.
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 transferred the whole of a loss making trade (Coles) to another group company (Leekes) which already carried on a similar trade. The Court of Appeal has now agreed with the Upper Tribunal, dismissing the taxpayer’s appeal against HMRC’s decision to deny the use of the losses against the whole profits of the successor’s enlarged trade.
The Court of Appeal’s decision highlights the wording in the legislation that provides that the successor is entitled to relief ‘for any amount for which the predecessor would have been entitled to relief if it had continued to carry on the trade’. In the Court’s opinion, ‘the trade’ must refer to the trade previously carried on by the predecessor. Coles could not be deemed to continue to carry on the whole of the enlarged trade as it had never carried this on previously. The successor was therefore barred from claiming more relief than it could offset against the trading income that it derived from the predecessor’s former trade.
The Court also rejected the First-tier Tribunal’s concerns about the practical difficulties of identifying the income against which the losses could be set going forward, finding that careful record keeping could avoid these difficulties and would not be an onerous requirement.
Following last year’s changes to the rules for the carry forward of corporate tax losses, this case will only have an impact on the use of losses brought forward into current and future periods from before April 2017.
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