Corporation Tax Bill

House of Commons

Session 2009 - 10
Internet Publications
Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 14 — Change in company ownership
Chapter 6 — Recovery of unpaid corporation tax
360

Recovery of unpaid corporation tax for accounting period beginning before change
710
Recovery of unpaid corporation tax for accounting period beginning before
change
(1)
This section applies if an officer of Revenue and Customs considers that—
(a)
there has been a change in the ownership of a company (“X”),
5
(b)
any corporation tax assessed on X for an accounting period beginning
before the change remains unpaid at any time more than 6 months after
it was assessed, and
(c)
any of conditions A to C in section 711 (conditions relating to
company’s trade or business) is met.
10
(2)
A person who is linked to X may be assessed by the officer and charged to an
amount of corporation tax which does not exceed the amount remaining
unpaid.
(3)
A person assessed and charged under this section is to be assessed and charged
in the name of X.
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(4)
An assessment under this section is not out of time if it is made within 3 years
from the date of the final determination of the liability of X to corporation tax
for the accounting period mentioned in subsection (1)(b).
711
Conditions relating to company’s trade or business
(1)
The following are the conditions mentioned in section 710(1)(c).
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(2)
Condition A is that—
(a)
in the period of 3 years before the change in the ownership of X, the
activities of a trade or business of X cease or the scale of those activities
becomes small or negligible, and
(b)
there is no significant revival of those activities before the change
25
occurs.
(3)
Condition B is that after the change in the ownership of X, but under
arrangements made before it, the activities of a trade or business of X cease or
the scale of those activities becomes small or negligible.
(4)
Condition C is that—
30
(a)
there is a major change in the nature or conduct of a trade or business
of X in the relevant 6 year period,
(b)
a relevant transfer of assets of X occurs—
(i)
in the period of 3 years before the change in the ownership of X,
or
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(ii)
after the change but under arrangements made before it, and
(c)
the major change mentioned in paragraph (a) is attributable to that
transfer.
(5)
In this section—
“the relevant 6 year period” means the period of 6 years beginning 3 years
40
before the change in the ownership of X,
“relevant transfer”, in relation to assets of X, means a transfer of those
assets—

Corporation Tax Bill
Part 14 — Change in company ownership
Chapter 6 — Recovery of unpaid corporation tax
361

(a)
to a person who had control of X at any time in the relevant
period before the change in the ownership of X,
(b)
to a person connected with a person mentioned in paragraph
(a), or
(c)
to a person under arrangements which enable any of those
5
assets, or any assets representing those assets, to be transferred
to a person mentioned in paragraph (a) or (b), and
“transfer”, in relation to an asset, includes—
(a)
any disposal, letting or hiring of it,
(b)
any grant or transfer of any right, interest or licence in or over
10
it, and
(c)
the giving of any business facilities with respect to it.
(6)
For the meaning of “a major change in the nature or conduct of a trade or
business”, see section 712.
712
Meaning of “a major change in the nature or conduct of a trade or business”
15
(1)
This section applies for the purposes of section 711(4).
(2)
“A major change in the nature or conduct of a trade or business” includes—
(a)
a major change in the type of property dealt in, or services or facilities
provided, in the trade or business,
(b)
a major change in customers, outlets or markets of the trade or
20
business,
(c)
a change by which the company ceases to be a trading company and
becomes an investment company,
(d)
a change by which the company ceases to be an investment company
and becomes a trading company, and
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(e)
if the company is an investment company, a major change in the nature
of the investments held by the company.
(3)
Any reference in subsection (2) to a change includes a change which is
achieved gradually as a result of a series of transfers.
(4)
In this section “trading company” means a company whose business consists
30
wholly or mainly in the carrying on of a trade or trades.
(5)
For the purposes of this section, a company is an investment company if—
(a)
its business consists wholly or mainly in the making of investments,
and
(b)
the principal part of its income is derived from investments.
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(6)
But a company is not an investment company if its business consists wholly or
mainly in the holding of shares or securities of companies—
(a)
which are its 90% subsidiaries, and
(b)
which are trading companies.
Recovery of unpaid corporation tax for accounting period ending on or after change
40
713
Recovery of unpaid corporation tax for accounting period ending on or after
change
(1)
This section applies if an officer of Revenue and Customs considers that—

Corporation Tax Bill
Part 14 — Change in company ownership
Chapter 6 — Recovery of unpaid corporation tax
362

(a)
there has been a change in the ownership of a company (“Y”),
(b)
any corporation tax has been assessed on Y or an associated company
for an accounting period ending on or after the change,
(c)
that tax remains unpaid at any time more than 6 months after it was
assessed, and
5
(d)
the condition in section 714 (the expectation condition) is met.
(2)
A person who is linked to Y may be assessed by the officer and charged to an
amount of corporation tax which does not exceed the amount remaining
unpaid.
(3)
A person assessed and charged under this section is to be assessed and charged
10
in the name of the company (“T”) by which the tax remains unpaid.
(4)
An assessment under this section is not out of time if it is made within 3 years
from the date of the final determination of the liability of T to corporation tax
for the accounting period mentioned in subsection (1)(b).
(5)
For the meaning of “associated company”, see section 718.
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714
The expectation condition
(1)
The condition mentioned in section 713(1)(d) is that it would be reasonable
(apart from section 713) to make the inference specified in subsection (3) from
any of the matters specified in subsection (2).
(2)
Those matters are—
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(a)
the terms of any transactions entered into in connection with the
change in the ownership of Y, and
(b)
the other circumstances of the change and of any such transactions.
(3)
The inference is that at least one of the transactions mentioned in subsection (2)
was entered into by one or more of its parties on the assumption that, if a
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potential tax liability were to arise, it would be unlikely to be met or to be met
in full.
(4)
A “potential tax liability” is a liability to pay corporation tax which would or
might arise—
(a)
from an assessment, made after the change in ownership, on Y or an
30
associated company (whether or not a particular associated company),
and
(b)
in foreseeable circumstances.
(5)
Circumstances are “foreseeable circumstances” if—
(a)
the circumstances were reasonably foreseeable at the time of the change
35
in ownership, or
(b)
there was a reasonably foreseeable risk at that time that the
circumstances might occur.
(6)
For the meaning of “transaction entered into in connection with change in
ownership”, see section 715.
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715
Meaning of “transaction entered into in connection with change in
ownership”
(1)
This section has effect for the purposes of section 714.

Corporation Tax Bill
Part 14 — Change in company ownership
Chapter 6 — Recovery of unpaid corporation tax
363

(2)
A transaction is entered into in connection with a change in the ownership of
Y if—
(a)
it is the transaction, or one of the transactions, by which the change is
effected, or
(b)
it is entered into as part of a series of transactions, or scheme, of which
5
transactions effecting the change have formed or will form part.
(3)
Any reference in this section to a scheme is to a scheme, arrangements or
understanding of any kind.
(4)
It does not matter for the purposes of subsection (3)—
(a)
whether the scheme, arrangements or understanding is legally
10
enforceable, or
(b)
how many transactions are involved.
(5)
It does not matter, for the purpose of determining whether any transactions
have formed or will form part of a series of transactions or scheme, that the
parties to each of the transactions are the not same.
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(6)
The cases in which any two or more transactions are to be taken as forming part
of a series of transactions or scheme include a case in which it would be
reasonable to assume that one or more of them—
(a)
would not have been entered into independently of the other or others,
or
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(b)
if entered into independently of the other or others, would not have
taken the same form or been on the same terms.
Miscellaneous
716
Interest
(1)
Section 87A of TMA 1970 (interest on overdue corporation tax etc) has effect in
25
relation to corporation tax assessed under section 710 or 713 (recovery of
unpaid corporation tax) with the following modification.
(2)
That modification is that any reference to the date when the tax becomes due
and payable is to be read as a reference to the date when the tax became due
and payable—
30
(a)
in the case of an assessment under section 710 (recovery of tax for
accounting period beginning before change), by X,
(b)
in the case of an assessment under section 713 (recovery of tax for
accounting period ending on or after change), by Y or the associated
company, depending on which is the company whose unpaid tax gave
35
rise to the assessment.
717
Effect of payment in pursuance of assessment under section 710 or 713
(1)
A payment—
(a)
in pursuance of an assessment under section 710 or 713 (recovery of
unpaid corporation tax), or
40
(b)
of interest under section 87A of TMA 1970 (as that section has effect in
accordance with section 716),

is not allowed as a deduction in calculating income, profits or losses for any tax
purposes.

Corporation Tax Bill
Part 14 — Change in company ownership
Chapter 7 — Meaning of “change in the ownership of a company”
364

(2)
A person who makes such a payment may recover an amount equal to the
payment—
(a)
in the case of an assessment under section 710 (recovery of tax for
accounting period beginning before change), from X, or
(b)
in the case of an assessment under section 713 (recovery of tax for
5
accounting period ending on or after change), from Y or the associated
company, depending on which is the company whose unpaid tax gave
rise to the assessment.
718
Meaning of “associated company”
(1)
This section has effect for the purposes of sections 713 and 714.
10
(2)
“Associated company”, in relation to Y and an assessment to tax, means a
company (whenever formed) which, at the time of the assessment or at an
earlier time after the change in the ownership of Y—
(a)
has control of Y,
(b)
is a company of which Y has control, or
15
(c)
is a company under the control of the same person or persons as Y.
Chapter 7
Meaning of “change in the ownership of a company”
Meaning of “change in the ownership of a company”
719
Meaning of “change in the ownership of a company”
20
(1)
For the purposes of this Part there is a change in the ownership of a company
if condition A, B or C is met.
(2)
Condition A is that a single person acquires a holding of more than half the
ordinary share capital of the company.
(3)
Condition B is that—
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(a)
two or more persons each acquire a holding of at least 5% of the
ordinary share capital of the company, and
(b)
those holdings together amount to more than half the ordinary share
capital of the company.
(4)
Condition C is that—
30
(a)
two or more persons each acquire a holding of the ordinary share
capital of the company, and
(b)
those holdings together amount to more than half the ordinary share
capital of the company,

but there is disregarded a holding of less than 5% unless—
35
(i)
it is an addition to an existing holding, and
(ii)
the two holdings together amount to at least 5% of the ordinary share
capital of the company.
(5)
See also sections 721 and 722 which provide for things other than ordinary
share capital to be taken into account in determining whether there has been a
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change in the ownership of a company.