Readers may recall previous newsletters (the last one being 4 February 2020) discussing HMRC’s view of the application of the anti-avoidance rules in Part 14 CTA 2010 which can deny the use of losses where there has been a change in a company’s ownership and a major change in the nature or conduct of a trade (the so-called MCINOCOT rules), or prior to the change of ownership the trade had become small or negligible.
We are pleased to note that the additional ring-fence trade guidance that has been under discussion for some time has now been published in the HMRC manuals (see OT21069A to C).
As stated in previous newsletters, we believe the combination of this published guidance, and the ability to obtain clearances in most circumstances where there is remaining doubt as to the application of the MCINOCOT rules means that in the majority of cases, provided the company changing hands has a genuine ongoing business, the MCINOCOT rules should not normally be an impediment to doing a deal. This should allow parties looking to either sell or buy companies with ring-fence losses to plan the best commercial deal without having too much concern around the tax risk associated with these measures. This is to be welcomed and will hopefully assist in getting assets into the hands of parties most likely to extract maximum value, particularly in the current climate where more companies might be finding themselves in a loss position. CWE has already had some success in obtaining clearances in appropriate circumstances although the guidance makes it clear that HMRC will not provide comfort to companies where it is clear that loss-buying is the primary purpose of the transaction.