Corp Tax - Chapter 16

Question 1

Why do the anti avoidance rules exist?

Answer 1

To prevent a company carrying forward its trading losses when there has been a change in ownership.

Question 2

Change in ownership criteria:

Answer 2

Within three years a single person acquires more than 50% of the share capital.

Or two or more acquire 5%, and together owns 50%.

If they join a group = change in ownership

Question 3

Exemptions to CIO

Answer 3

a. an acquisition of shares under a Will or on intestacy; or

b. an unsolicited gift of shares

Question 4

Major changes in trade (Time)

Answer 4

Five Year period (Three years before - upto 5 years after)

Question 5

Any major changes during the years result in…

Answer 5

Anti avoidance provision.

Question 6

Statement of Practice 10/91 - Allowed changes

Answer 6

• changes to keep pace with new technology;
• the adoption of new management techniques;
• improvements in efficiency of the company (including certain redundancies);
• rationalisation (including the dropping of unprofitable product lines)

Question 7

Small or negligible trades

Answer 7

Anti avoidance applies, if small before and large afterwards.

Five year restriction does not apply, any years will cause anti-avoidance.

Question 8

Effect of anti-avoidance.

Answer 8

Prevents trading losses from being carried forward,

Losses are blocked forever.

Question 9

Major change in business include:

Answer 9

i. a major change in the nature or conduct of any trade or business carried on
by the company;

ii. a major change in the scale of any trade or business carried on by the
company;

iii. beginning or ceasing to carry on a particular trade or business

Question 10

If there is no major change in business, how long before the losses are unblocked?

Answer 10

5 years.

Question 11

CIO of Investment Business anti avoidance if…

Answer 11

The anti-avoidance rules apply to a company with an investment business if there is a change in ownership, and:

• within five years after the change in ownership there is a significant increase in
  the company’s capital; or
• within the eight-year period beginning three years before the change of
  ownership there is a major change in the nature or conduct of the business; or
• the change of ownership occurs at any time after the activities became small
  or negligible, and before a significant revival of the business.

Question 12

Significant increase in
the company’s capital:

Answer 12

• an increase of at least £1 million from the pre-change capital; and
• the post-change capital has increased to at least 125% of the pre-change
  capital