In Spring Capital v HMRC [2019] UKFTT 699 (18 November 2019), the FTT found that losses could not be carried forward between the predecessor trade and the successor trade under ICTA 1988 s 343.
The FTT had released its decision in relation to Spring Capital’s appeal in February 2015 but had adjourned the appeal in relation to one issue. This issue was whether the appellant was entitled to carry forward losses under s 343. This depended on the outcome of another appeal by Spring Salmon & Seafood (‘SSS’), which was the ‘predecessor’ company of the appellant for the purposes of s 343, having previously carried on the same trade. The UT ([2017] UKUT 2005) had determined the appeal in favour of HMRC and found that SSS could not carry back the relevant losses.
The s 343 issue, now considered by the FTT, concerned the quantum of losses which Spring Capital could carry forward from SSS. This involved ‘a consideration of the “relevant assets” and “relevant liabilities” restrictions contained in ss 343(4) and 344(5) and (6).’
The FTT accepted that the gradual closing down of a trade could be a ‘process’ rather than an overnight event, but it noted that the legislation required the identification of a point in time immediately before the cessation of the trade. This had to be the end of the process; when the trade actually ceased rather than when it started to wind down. The trade of SSS had therefore ceased on 11 November 2004, as this was the date of the last invoice issued by SSS to its customers. Consequently, the cash comprising the £1m interim dividend paid on 1 November 2004 could not be counted as a ‘relevant asset’ of the appellant; the dividend had been paid by SSS before its trade had ceased. In addition, the disputed sum of £2.8m which was originally shown in the appellant’s July 2002 loan account had not been substantiated by evidence. It was therefore not a ‘relevant asset’ of the appellant.
The FTT concluded that the ‘relevant liabilities’ of the appellant exceeded its relevant assets by £1,579,574 and thus exceeded the losses which could potentially be carried forward (£424,544), so that no losses of the predecessor company (SSS) could be carried forward, under s 343, to the successor company (the appellant).
Why it matters: The tribunal observed that ss 343(4) and 344(5) and (6) had been introduced expressly as restrictions on the relief contained in s 343. Their purpose was to prevent insolvent companies from being transferred with their tax losses (in circumstances where there was no major change in the nature or conduct of the underlying trade). The FTT concluded: ‘Accordingly, this appeal – which has lasted more than five years – is finally dismissed.’
In Spring Capital v HMRC [2019] UKFTT 699 (18 November 2019), the FTT found that losses could not be carried forward between the predecessor trade and the successor trade under ICTA 1988 s 343.
The FTT had released its decision in relation to Spring Capital’s appeal in February 2015 but had adjourned the appeal in relation to one issue. This issue was whether the appellant was entitled to carry forward losses under s 343. This depended on the outcome of another appeal by Spring Salmon & Seafood (‘SSS’), which was the ‘predecessor’ company of the appellant for the purposes of s 343, having previously carried on the same trade. The UT ([2017] UKUT 2005) had determined the appeal in favour of HMRC and found that SSS could not carry back the relevant losses.
The s 343 issue, now considered by the FTT, concerned the quantum of losses which Spring Capital could carry forward from SSS. This involved ‘a consideration of the “relevant assets” and “relevant liabilities” restrictions contained in ss 343(4) and 344(5) and (6).’
The FTT accepted that the gradual closing down of a trade could be a ‘process’ rather than an overnight event, but it noted that the legislation required the identification of a point in time immediately before the cessation of the trade. This had to be the end of the process; when the trade actually ceased rather than when it started to wind down. The trade of SSS had therefore ceased on 11 November 2004, as this was the date of the last invoice issued by SSS to its customers. Consequently, the cash comprising the £1m interim dividend paid on 1 November 2004 could not be counted as a ‘relevant asset’ of the appellant; the dividend had been paid by SSS before its trade had ceased. In addition, the disputed sum of £2.8m which was originally shown in the appellant’s July 2002 loan account had not been substantiated by evidence. It was therefore not a ‘relevant asset’ of the appellant.
The FTT concluded that the ‘relevant liabilities’ of the appellant exceeded its relevant assets by £1,579,574 and thus exceeded the losses which could potentially be carried forward (£424,544), so that no losses of the predecessor company (SSS) could be carried forward, under s 343, to the successor company (the appellant).
Why it matters: The tribunal observed that ss 343(4) and 344(5) and (6) had been introduced expressly as restrictions on the relief contained in s 343. Their purpose was to prevent insolvent companies from being transferred with their tax losses (in circumstances where there was no major change in the nature or conduct of the underlying trade). The FTT concluded: ‘Accordingly, this appeal – which has lasted more than five years – is finally dismissed.’
