accounting period. Examples of such matters are interest income, rental income and chargeable gains.
5.3 Once the other sources of taxable income have been covered by the trading losses for that year, the trading losses can then be carried back to relieve profits in the preceding 12 months (Section 393A(1)(b). This carry-back of losses can be used to cover trading profits, profits from other sources, such as interest income and rental income, and chargeable gains.
5.4 This is one of the tax issues that arise when considering tax covenants. For this reason there is a fuller explanation given in Chapter 4.
5.5 Governments throughout the world have concerns about tax losses being treated as assets which are effectively traded in corporate transactions. The anti-avoidance rules in the USA appear particularly complex in this regard. In the United Kingdom, the anti- avoidance provisions dealing with trading losses are set out in Section 768, ICTA. This section provides that the losses cannot be carried forward following a change of ownership of a company if there is a major change in the nature or conduct of a trade carried on by a company. 5.6 This is another point in the corporation tax regime which is of concern to both Buyer and Seller in a corporate transaction. This is therefore covered in more detail in Chapter 4. 5.7 In a group of companies it is possible to move trades about within the group, and the tax losses faithfully follow that trade: under the provisions of Section 343, ICTA there is assumed to be no discontinuance of the trade. As an example, Westhorpe Group Limited owns the entire share capital of Wyverstone Leisure Limited. The trade of Wyverstone Leisure Limited can be moved up to its parent company without this being treated as the cessation of a trade. Any tax losses in Wyverstone will be moved up with the trade and should continue to be available in Westhorpe Group Limited if the same trade is carried on. 6.1 A company is subject to corporation tax on its chargeable gains, by virtue of Section 8, TCGA. If a company makes a chargeable gain it is subject to corporation tax at the same rates as apply to other profits. 6.2 The inflation allowance known as indexation ceased for individuals and trusts on 5 April 2008 but continues for limited companies, and runs from 31 March 1982. It is therefore very possible that the base cost and indexation of an asset will be equal to, or greater than, the consideration received, with no tax payable as a result. 6.3 Capital assets are transferred within a 75% group on the basis of no gain and no loss under the provisions of Section 171, TCGA. This means that the receiving company takes over as base cost the cost plus indexation of the transferring company. 6 Chargeable Gains
26
Made with FlippingBook Learn more on our blog