Schedule 7 - Accounting practice and related matters
Finance Bill
5:30 pm
Philip Hammond (Shadow Chief Secretary To the Treasury, Treasury; Runnymede and Weybridge, Conservative)
I beg to move amendment No. 119, in schedule 7, page 91, line 28, at end insert—
‘(8A)In section 768B(1)(a) after “capital” insert “and the main purposes or one of the main purposes, of the change of ownership was a tax avoidance purpose.”.’.
I am sure, Sir Nicholas, that you will now see how plodding carthorses can become racehorses, given a threat from the Chair.
The amendment seeks to introduce into paragraph 3 a motive test to ensure that it bites only when the main purpose, or one of the main purposes, of the change of ownership was a tax avoidance purpose. Paragraph 3, quite reasonably, seeks to block a company being sold for the value of its tax losses and thus closes an existing tax loophole. The paragraph works by amending the scope of section 768B of the Income and Corporation Taxes Act 1988.
Those rules to block the buying of companies specifically for the value of their tax losses apply so that they deny purchases of businesses—when the transaction is purely commercial—the benefit of the tax losses within non-trading companies of the acquired group whenever there is an injection of more than £1 million of capital post-transaction. That is a pretty small sum, which the purchaser of a failing business might reasonably expect to have to inject just to shore up the working capital base of the business.
Given that there are many such transactions and that making them more difficult or costly could cut off or reduce the supply of investment finance to struggling or failing businesses—with all the consequences that that could entail—this approach seems very draconian. The amendment therefore seeks to introduce a motive test into section 768B of ICTA. We believe that the intended purpose can be achieved, and, at the same time, the underlying provision of ICTA can be improved, by introducing this motive test, which will allow certain non-trading tax losses to be carried forward in companies where the change of ownership is for commercial purposes, and is not for a tax avoidance purpose. Therefore, the need for injection of new capital into a company following a change of ownership will not in itself create a disadvantageous tax treatment that might deter the completion of the transaction.