Peter Vaines considers lessons from the tribunal decision in J Rice v HMRC on when there is a cessation of trade
The recent case of Jeremy Rice v HMRC TC03273 was concerned with entrepreneurs’ relief and whether it applied to Mr Rice on the disposal of a business asset. However, the point at issue did not really have much to do with entrepreneurs’ relief at all; the case was all about the meaning of ceasing to trade. Mr Rice carried on a trade of selling used cars. He also owned the premises. He stopped using the premises for his business and started to sell cars on the site adjoining his home. He later sold the original premises. The gain on this sale would only qualify for entrepreneurs’ relief if it was an associated disposal under TCGA 1992 s 169I; that is to say, the premises were sold within three years of the business ceasing to be carried on. The question was whether, when Mr Rice moved his business to the site adjoining his home, that was the cessation of a business and the commencement of a new one. If so, he would be entitled to entrepreneurs’ relief. If the business was continuing, there would be no cessation of the trade and no entitlement to entrepreneurs’ relief for an associated disposal.
HMRC argued that the trade did not cease. It said that Mr Rice continued to carry on the trade of selling used cars and all he did was to change the location where the trade was carried on. He was selling used cars before the move and he was selling used cars after the move, so how could he say the trade had ceased? The tribunal took a much more sympathetic view and pointed to a number of differences between the activities carried on at the different locations, the different type of cars sold in the two locations and the reduction in the number of cars in stock. The old premises were clearly trading premises with a forecourt and signs, whereas the replacement premises were much more discreet and were not obviously trading premises. The tribunal concluded that the way in which the activities were carried on (as well as their locations) meant that there was a cessation of one trade and the commencement of another.
It is a bit odd that no reference was made in the judgment to CTA 2010 s 712. Losses of a trade can only be carried forward against the profits of the same trade, not against the profits of a new trade. Section 712 provides that even profits of the same trade cannot be carried forward if there has been a major change in the nature or conduct of the trade. This means: a major change in the type of property dealt in, or services or facilities provided in the trade; or a major change in customers, outlets or markets of the trade. This provision was considered by the Court of Appeal in Willis v Peeters Picture Frames Ltd [1985] STC 453, where the company had sold its products direct to customers, mainly wholesalers, and later did so through distribution companies. That was not even regarded as a major change in the nature or conduct of the trade – still less a cessation of the trade. Having regard to the clear statutory recognition that a trade continues despite (by the look of it) all the elements which occurred in the case of Mr Rice, one might wonder how these decisions can be reconciled.
Peter Vaines considers lessons from the tribunal decision in J Rice v HMRC on when there is a cessation of trade
The recent case of Jeremy Rice v HMRC TC03273 was concerned with entrepreneurs’ relief and whether it applied to Mr Rice on the disposal of a business asset. However, the point at issue did not really have much to do with entrepreneurs’ relief at all; the case was all about the meaning of ceasing to trade. Mr Rice carried on a trade of selling used cars. He also owned the premises. He stopped using the premises for his business and started to sell cars on the site adjoining his home. He later sold the original premises. The gain on this sale would only qualify for entrepreneurs’ relief if it was an associated disposal under TCGA 1992 s 169I; that is to say, the premises were sold within three years of the business ceasing to be carried on. The question was whether, when Mr Rice moved his business to the site adjoining his home, that was the cessation of a business and the commencement of a new one. If so, he would be entitled to entrepreneurs’ relief. If the business was continuing, there would be no cessation of the trade and no entitlement to entrepreneurs’ relief for an associated disposal.
HMRC argued that the trade did not cease. It said that Mr Rice continued to carry on the trade of selling used cars and all he did was to change the location where the trade was carried on. He was selling used cars before the move and he was selling used cars after the move, so how could he say the trade had ceased? The tribunal took a much more sympathetic view and pointed to a number of differences between the activities carried on at the different locations, the different type of cars sold in the two locations and the reduction in the number of cars in stock. The old premises were clearly trading premises with a forecourt and signs, whereas the replacement premises were much more discreet and were not obviously trading premises. The tribunal concluded that the way in which the activities were carried on (as well as their locations) meant that there was a cessation of one trade and the commencement of another.
It is a bit odd that no reference was made in the judgment to CTA 2010 s 712. Losses of a trade can only be carried forward against the profits of the same trade, not against the profits of a new trade. Section 712 provides that even profits of the same trade cannot be carried forward if there has been a major change in the nature or conduct of the trade. This means: a major change in the type of property dealt in, or services or facilities provided in the trade; or a major change in customers, outlets or markets of the trade. This provision was considered by the Court of Appeal in Willis v Peeters Picture Frames Ltd [1985] STC 453, where the company had sold its products direct to customers, mainly wholesalers, and later did so through distribution companies. That was not even regarded as a major change in the nature or conduct of the trade – still less a cessation of the trade. Having regard to the clear statutory recognition that a trade continues despite (by the look of it) all the elements which occurred in the case of Mr Rice, one might wonder how these decisions can be reconciled.
