Corporation tax for ATX-UK - part 2: self-test answers

Test your understanding: answers

(1). It is not possible for a company’s capital losses to be transferred when its business is sold. The capital losses will remain with DTU Ltd and can be offset against any gains arising on the sale of its assets or on future disposals.

(2). Trading losses can be offset against total profits (income and gains) of future accounting periods. Although GZI Ltd has made significant changes to the way it is carrying on its trade, it is still carrying on the same trade with a view to profit. Accordingly, the losses carried forward as at 31 March 2021 can be offset against the total profits of the year ended 31 March 2022.

The changes made by GZI Ltd to its activities would amount to a major change to the nature or conduct of its trade. However, the rules that restrict the offset of trading losses in these circumstances only apply when there has been a change of ownership of a company, which is not the case here.

(3). The trading losses will be automatically transferred to KPB Ltd together with the trade of EDA Ltd. This is because LGB Ltd is the beneficial owner of at least 75% of the business of EDA Ltd prior to the sale of the business to KPB Ltd (because it owns 100% of EDA Ltd) and will continue to control at least 75% of the business once it is directly owned by KPB Ltd (because it owns 80% of KPB Ltd).

(4). GF Ltd has made a loan to one of its passive investors. However, it would not have been required to make a payment to HMRC if all of the following conditions had been satisfied:

  • The loan did not exceed £15,000.
  • The borrower, Lamar, worked full time for GF Ltd.
  • The borrower did not own 5% or more of GF Ltd.