CTM02100 - Corporation Tax: computation of income: special rules: commencement and cessation of trade

CTA09/S41 (2) and SCH1/PARA520 (3)

Where a company begins to carry on a trade, the company’s income from the trade is computed as if the trade had commenced, even though it may previously have been carried on by another person. Where a company ceases to carry on a trade the company’s income from the trade is computed as if the trade had discontinued, even though it may continue to be carried on by another person.

This means the special rules on commencement or discontinuance of a trade apply. These rules also apply where a company begins or ceases to be within the charge to CT in respect of a trade.

Examples of the special rules are:

• CTA09/S162 onwards on valuation of trading stock on discontinuance of a trade
• CTA09/S55(2) on debts proved to be irrecoverable after discontinuance of a trade, and
• CTA09/S188 to S196 (trading income) and CTA09/S280 to S285 (property income) on post cessation receipts and losses.

BIM42745 deals with irrecoverable debts and BIM90030 - BIM 90050 with post cessation receipts.

Any specific provision that a trade is not to be treated as permanently discontinued overrides the above general provision above.

A limited company which is re-registered under CA06/S102 as an unlimited company remains the same company, provided any changes to the company’s constitutional documents are limited to those necessary for the re-registration. So if there is not a significant change in the nature of the company’s trade at the time of the re-registration, there is no question of a cessation or a new business and unused losses and capital allowances arising before the change are available for set-off against profits earned after that date.