HMRC has had its practice of loss streaming in relation to transfers of trade validated in the Court of Appeal in Leekes Ltd v Revenue & Customs Commissioners [2018] BTC 21. Paul Davies CTA ACA, tax writer at Croner-i, takes a closer look at the decision
The Court of Appeal has upheld HMRC’s long-standing practice of loss streaming in relation to transfers of trade where the same persons own a 75% or greater interest in the transferred trade both before and after the transfer, i.e. where the transfer of trade without change in ownership rules in the Corporation Tax Act 2010 (CTA 2010), Pt. 22, Ch. 11 apply.
The judgment, in Leekes Ltd v Revenue & Customs Commissioners [2018] BTC 21, confirmed that the successor company profits against which any predecessor company losses may be offset are restricted to those profits of the successor that derive only from the trade formerly carried on by the predecessor. This means that the losses may not be carried-forward against the profits of the successor’s enlarged trade as the First Tier Tribunal (FTT) had held.
