CH 16 - Change in Ownership in a Company

Question 1

What includes a ‘major change’ in the nature or conduct of the compny’s trade?

Answer 1

A ‘major change’ includes a major change in:
* property dealt in;
* services provided;
* facilities provided;
* customers;
* outlets;
* markets.

Question 2

Describe anti-avoidance where there has been a change in ownership of a company.

Answer 2

the use of trading losses will be blocked from the date of the change of ownership if,

in a period of five years beginning not more than three years before the change, there has been a major change in the nature or conduct of the company’s trade.

Question 3

What changes a company can make that will not constitue a major change?

4 points

Answer 3

• to keep pace with new technology ;
• the adoption of new management techniques ;
• Improvements in efficiency of the company , and
• rationalisation (e.g. cessation of unprofitable product lines)

(changes that an ordinary prudent businessperson would have made, in order to turn the trade into profit)

SP10/91 - case ‘Purchase v Tesco (1984)

Question 4

Does anti-avoidance rules apply to a company’s trade which was small or negligable immediatgely before the change in its ownership?

Answer 4

Yes, if the trade undergoes a considerable revival in a period following the change in ownership.

This provision is not confined to 5 years.

Question 5

What happens to trade losses arising before the change in ownership caught by anti-avoidance?

Answer 5

Cought Trade losses ;
- can never be set against profits arising after the change in ownership, and
- there can be no carry back of trade losses arising after the change in ownership against profits arising before the change in ownership.

This anti-avoidance rule applies only to trade losses and has no time limit; the losses are blocked forever.

Question 6

If no major change in the nature or conduct of trade exist, what other resctirion to c/fwd losses exists?

Answer 6

there may still be a restriction on the use of carried forward losses if;
- there has been a major change in the business of the company
- during the same 5-year period for trade losses or
- 8-year period (beginning 3-years before the change in ownership) for all other losses.

applies for a changes of ownership on or after 1.April 2017

Question 7

What consittues a major change in the business
& how it applies?

Answer 7

A major change in the business includes:
- in the nature or conduct of any trade or business carried on by the company;
- in the scale of any trade or business carried on by the company;
- beginning or ceasing to carry on a particular trade or business.

Losses brought forward cannot be used against profits that can reasonably be attributed to activities or sources of income from which the major change in the company’s business has arisen.
This restriction (except for trading losses) only applies for five years after the end of the accounting period of the change in ownership.

Question 8

What is considered to be a significant increase in the company’s capital?

Answer 8

When there is;
- an increase of at least £1 milion from the pre-change capital; and
- the post-change capital has increased to at least 125% of the pre-change capital.

Question 9

What is shell company?

Answer 9

a company that is not carying on a trade
is not a company with investment business
not carying on a Uk property business