UK and International Tax news

Court of Appeal and Transfer Of Trade And Loss Streaming Rules Case

Thursday 21st June 2018

The Court of Appeal has recently given its decision in the appeal by the taxpayer against the decision of the Upper Tribunal in respect of the use of trading losses against the whole profits of the successor company’s enlarged trade.

In Leekes Ltd v HMRC [EWCA 2018 – 1185] the CoA considered the old legislation in s.343 TA 1988 which applied where a transfer of a trade took place between two members of a group of companies. The taxpayer transferred the whole of a loss making trade (Coles) to another group company (Leekes) which already carried on a similar trade.

The Upper Tribunal had previously found for HMRC denying the use of the losses against the whole profits of the successor’s enlarged trade [HMRC v Leekes Ltd  UT/2015/0083].

The transferee company had maintained that it was entitled to obtain relief for those hived in losses by setting them off against the income of the enlarged business. The balance of the unrelieved CT losses were to be carried forward for utilisation against future profits of the transferee company.

However, on appeal, the UT agreed with HMRC and held that s.343 TA 88 [in particular ss3 and ss8], now s.944 CTA 2010 +, required the transferor’s trade to be distinctly identified as continuing whilst part of a larger trade and future profits of the transferred trade had to be identified by ‘careful record keeping’.

The Court of Appeal has now agreed with the UT and dismissed the taxpayer’s appeal against HMRC’s decision to deny the use of the losses against the whole profits of the successor’s enlarged trade.


If you would like to discuss the case in more detail, please contact Keith Rushen on 0207 486 2378.

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