CTM08070 - Corporation Tax: management expenses: company status - cessation of trade
A trading company that happens to be left with income-yielding assets after the cessation of its trade does not automatically become a鈥榗ompany with investment business鈥�. See Carpet Agencies Ltd v CIR 38TC223. It will only become 鈥榓 company with investment business鈥� if there is evidence that it has a business and that that business or part of its business will be the making of investments.
If you have a case where:
- trading ceases, and
- funds are held on deposit pending the liquidation of the company, or in the period between trades,
you should normally argue that the company is not a 鈥榗ompany with investment business鈥�. The comments of Lord Denning in E Y L Trading Co Ltd v CIR 40TC386 at page 399 support a restrictive view of an 鈥榠nvestment鈥� business. He said the mere provision of cash at the bank pending its subsequent use is not the 鈥榟olding鈥� of investments鈥omething much more in the nature of a business activity is needed.
However, what a company may intend is not always clear cut. If a company:
- can demonstrate an intention to make investments,
and, for example,
- holds money on deposit for some time,
you may have to concede that it comes within CTA09/S1218B.
In spite of Lord Denning鈥檚 comments,
- money placed on deposit at a bank, or, for example,
- lent out to subsidiaries as an investment,
may be enough to bring a company within Section 1218B depending on the facts.
This view can be justified by Lord Sterndale鈥檚 remarks at pages 524 to 525 of The Gas Lighting Improvement Co Ltd 12TC503.