CTM03592 - Corporation tax: small profits relief: whether trade or business carried on - investment and holding companies

Close Investment Holding Companies

For accounting periods beginning on or after 1 April 1989 until 31 March 2015, regardless of whether it is in business a close company that simply holds investments such as a bank deposit account will fall within the definition of a close investment holding company at CTA10/S34, and will be liable at the full rate of CT (see CTM60700Ìý´Ç²Ô·É²¹°ù»å²õ).

Company with investment business

Some companies will seek relief for management expenses under CTA09/S1219, which requires that the company carry on 'investment business', defined without much further enlightenment at CTA09/1218 as making investments.  In such cases, it is a reasonable inference that the company is also carrying on a business for the purposes of CTA10/S25 (3).

Reorganisations

A company wishing to take over the trade of another may do so by first acquiring the target company바카라 사이트™s shares and then transferring the trade to itself.  This is commonly known as a hive-up.  In some cases the transfer of the trade takes place on the same day as the acquisition of the shares.

Whether the acquired company carries on a trade or business during the period after acquisition of the shares and before transfer of the trade is a question of fact.  But the normal sequence of events in a hive-up is that the predecessor must carry on the trade (even if only for a few minutes) while it is in common ownership with the successor.  There is no reason to overlook such very short periods of trading.

Non-Trading Holding Companies

CTA10/S26 provides that a non-trading holding company is not treated as carrying on a business, and is therefore excluded from the count of associated companies for an accounting period, provided that in relation to or throughout the period:

  • it carries on no trade,
  • it has one or more 51 per cent subsidiaries, and
  • it is a 바카라 사이트˜passive company바카라 사이트™, that is to say
    • it has no assets other than shares in companies which are its 51 per cent subsidiaries,
    • no income arises to it other than dividends,
    • if income arises to it in the form of dividends, they are passed through to shareholders (바카라 사이트˜redistribution condition바카라 사이트™), and those dividends are franked investment income in its hands,
    • no chargeable gains accrue to it,
    • no management expenses within CTA09/S1219 are incurred, and
    • no qualifying charitable donations are deductible from profits.

These conditions are broadly similar to those in SP5/94, which CTA10/S26 replaced.  If one or more of them is not met, it does not necessarily follow that the company must be regarded as an associated company; the company might still be able to establish that it is not carrying on a business, in line with the principles discussed above.