Clause 32 - Change in company ownership: company reconstructions

Part of Finance Bill – in a Public Bill Committee am 9:30 am ar 4 Mehefin 2013.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury) 9:30, 4 Mehefin 2013

We now return to the issue covered in clause 29. Clause 32 is being introduced as one of the three clauses in chapter 3 to close down loopholes in the loss relief rules. Like clause 29, this measure was announced at Budget 2013 and took effect on Budget day, 20 March.

Clause 32 relates to the treatment of losses in the event of a company reorganisation, resulting in a change of ownership, with a change of ownership defined by the Corporation Tax Act 2010 as where 51% of the company’s shares change hands. As the technical note explains:

“Where a trade is transferred between companies under common ownership, the normal rules—that company losses should belong to the company and trade that incurred them—are suspended and any losses brought forward are allowed to transfer with the trade. However, different rules apply where trade is transferred between unconnected companies.”

Intended to counter the practice of loss buying, chapter 2 of part 14 of the Corporation Tax Act 2010

“sets out that, in such circumstances, restrictions”— on the use of losses—

“apply if there is a major change in the nature”— or conduct—

“of the trade, investment business or UK property business carried on by a company within three years of the change of ownership”,


“where the change in ownership occurs after the company’s activities in a trade become small or negligible and before any significant revival”.

I am sure that the Minister will outline some of the more technical aspects of the clause in a little more detail, but I want to draw the Committee’s attention to the technical note that relates to clauses 29, 32 and 33, which states that,

HMRC have seen a marked increase in companies entering into arrangements to circumvent these rules.”

The tax information and impact note indicates that closing this loophole, alongside the loopholes dealt with in clauses 29 and 33, will result in an additional yield to the Exchequer of £35 million in this financial year and £40 million in 2014-15, before decreasing to £25 million a year by 2016-17.

I reiterate that that additional yield to the Exchequer and the closure of any loopholes is extremely welcome, but I would be grateful if the Minister would confirm how many companies have been using the loophole identified in the clause, and over what time period. In responding to clause 29, he mentioned that HMRC had acted swiftly to close down that loophole, but he did not state when it was first identified. Will he clarify that and quantify how much may have been lost to the Exchequer? I appreciate that, in relation to clause 29, he explained some of the difficulties associated with giving an exact figure, but will he give a figure, in relation to this clause, of what is thought to have been lost to the Exchequer both before and since the loophole was spotted, and will he tell us whether HMRC has assessed any pattern in the types of companies or sectors who may have used the loophole, or to whom it was marketed?