Corporation Tax Act, 1976

Transitional relief for existing companies on cessation of trade, etc.

176.—(1) Where a company is, in respect of any source of income, within the charge to corporation tax under any relevant Case of Schedule D during the year 1975-76 and ceases to possess that source at any time between that year and the year 1981-82, then subject to the provisions of this section the company shall be entitled to relief from tax in respect of any amount by which, if the company had ceased to possess the source on the 5th day of April, 1976, the taxed income from the source during the cessation period would have been less than the actual taxed income during that period.

(2) Relief under this section shall be an allowance equal to whichever is the less of—

(a) the amount referred to in subsection (1); and

(b) an amount equal to the appropriate fraction of the taxed income from the source during a period equal in length to the cessation period but ending when the company ceases to possess the source:

Provided that if the company ceases to possess the source in the year 1978-79 the allowance shall be reduced by one-fourth, if in the year 1979-80 by one-half, and if in the year 1980-81 by three-fourths.

(3) Where a company is entitled to an allowance under this section in respect of any source of income, then for the purpose of any liability of the company to corporation tax or income tax (but not for any other purpose) the amount of the income arising to the company from the source shall be treated as reduced by the amount of the allowance (the reduction being made, as far as may be, in the income arising in accounting periods for which the company is chargeable to corporation tax in respect of the source and, subject to that, in the income chargeable to income tax before the year 1976-77, and being made, as far as may be, in the income of a later rather than in that of an earlier period or year) and relief under this section shall be given in priority to any other relief.

(4) For purposes of this section “taxed income” means, in relation to any source, the amount of the income falling to be included in assessments for the purpose of charging the company to income tax or corporation tax in respect of the source.

(5) For purposes of this section, the relevant Cases of Schedule D are Cases I, II, III and V; and in relation to any source of income—

(a) “the cessation period” means the period over which assessments to income tax might have been revised on the company ceasing to possess the source on the 5th day of April, 1976 (and accordingly is three years for Cases I and II and two years for Cases III and V); and

(b) “the appropriate fraction” is such fraction of the cessation period as falls after the time when the company is first within the charge to corporation tax in respect of the source (and accordingly is, for Cases III and V, one-half).

(6) (a) (i) Except in so far as the context otherwise requires, references in this section to a company ceasing to possess a source of income shall, in relation to a trade, include the company ceasing in respect of the trade to be within the charge to corporation tax under Case I or II of Schedule D; and references to a company carrying on a trade or any part or activities of a trade are references to its doing so in such circumstances as to be within that charge to tax.

(ii) For purposes of this section the cessation period in relation to a trade shall be taken to be three years, notwithstanding that the trade has been carried on for less than three years before the year 1976-77; but where the appropriate fraction (that is to say the appropriate fraction under subsection (2) (b)) is to be applied to income from a trade which has been carried on by the company for a period less than three years, the appropriate fraction shall be increased in the proportion which a period of three years bears to that less period.

(iii) For purposes of this section, section 173 (7) shall apply in relation to the whole period after the trade was set up and commenced as, for other purposes of corporation tax, it applies from the end of the basis period for the year 1975-76, but (notwithstanding anything in section 173 (7)) any allowance to the company in respect of the trade, in so far as it cannot be given to the company, shall be given to the company's predecessors.

(b) (i) The following subparagraphs shall apply to the computation of a company's income from a trade for the purposes of this section.

(ii) No regard shall be had to any allowance or charge falling to be made in taxing the trade.

(iii) In determining what the taxed income from the trade would have been if the company had ceased to possess the trade as a source of income at the end of the year 1975-76, the computation shall be made, if need be, by division and apportionment or aggregation of income for accounting periods, including any period extending beyond the end of that year, and without regard to the operation of any enactment which would affect the computation on an actual discontinuance of the trade except section 58 (5) (a) of the Income Tax Act, 1967 , and section 3 of the Finance Act, 1971 .

(iv) Where the taxed income referred to in subsection (1) (whether the actual income or the income as on a cessation) falls to be ascertained partly by reference to a period in which the company incurred a loss in the trade, that income shall be ascertained as if there had been no such loss (nor any income) in that period, but in ascertaining for purposes of subsection (2) (b) the taxed income for any period losses incurred in that period and any part of a loss apportionable to that period shall be deducted from income.

(c) (i) If a company on ceasing at any time to possess a trade as a source of income continues to carry on any of the activities of the trade as activities of another trade, the company shall be disentitled as at that time to such part of the allowance in respect of the first-mentioned trade as is referable to those activities.

(ii) Where within two years after the time when a company ceases to possess a trade as a source of income—

(I) the trade or any part of it is carried on by the company or by an associated company; or

(II) the activities of the trade or part of them are carried on by an associated company as activities of another trade;

the company shall be disentitled as from that time to the allowance in respect of the first-mentioned trade:

Provided that where this subparagraph applies by reason only of part of the trade or part of its activities being carried on by an associated company the company shall be so disentitled only to such part of the allowance as is referable to that part of the trade or activities.

(iii) Where a company ceases at any time to carry on part of a trade, and within two years after that time that part of the trade or the activities of it are carried on by an associated company as its trade or part of its trade, the company shall be treated as having been, as from that time, disentitled to such part of any allowance in respect of the trade as is referable to that part of the trade or those activities.

(iv) Where by reason of a company carrying on a trade or part of a trade, or carrying on any activities in the course of a trade, that company or another company becomes disentitled to an allowance or part of an allowance, the allowance shall attach or remain attached to that trade (whether or not in the year 1975-76 that trade was being carried on by that company or at all).

(v) Where under subparagraph (iv) an allowance or part of an allowance in respect of a trade attaches to another trade, the allowance or that part of it shall, except as regards amount, be treated for all purposes as an allowance in respect of the trade, but the amount shall not be affected except as follows—

(I) the appropriate fraction shall be applied to the taxed income from that other trade, and the proviso to subsection (2) shall apply to that other trade; and

(II) the aggregate amount of the allowances to be given in respect of the trade on a company ceasing to possess it as a source of income, if there are more than one such allowance, shall not exceed the amount specified by subsection (2) (b) for that one of the allowances having the highest appropriate fraction.

(vi) For purposes of this paragraph the part of an allowance referable to any part of a trade or to any activities of a trade shall be determined, in relation to an event occurring at any time, by taking the amount of the allowance (as if on the company ceasing at that time to possess the trade as a source of income) and by apportioning that amount between that part or those activities of the trade and the remainder, according to the proportion in which the taxed income of the company from the trade is attributable thereto during the period of three years ending with that event (or any shorter period during which the company has carried on the trade), or, if there is no such taxed income, then by apportioning it in such other manner as may in the circumstances be just; but for determining the part of the allowance which is attached to a trade after that event the amount of the allowance shall be taken without regard to paragraph (b) of or the proviso to subsection (2).

(vii) Where under this paragraph a company becomes disentitled to an allowance or part of an allowance after the allowance or that part of it has been given to it or to another company, the allowance or part so given shall be withdrawn to the extent necessary to give effect to this paragraph.

(viii) For purposes of this paragraph a company is to be treated as another's “associated company” at a given time if at that time, or at any time within one year before or two years afterwards, one of the two has control of the other or both are under the control of the same person or persons (“control” having for this purpose the same meaning as in section 102).

(7) There shall be made any such adjustments of any person's liability to corporation tax or income tax, whether by way of repayment of tax, assessment or otherwise, as may be necessary to give effect to this section, and any such adjustment may be made at any time not later than ten years after the event giving rise to the adjustment.