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Practical corporation tax advice on disposal of trade

Practical corporation tax advice on disposal of...

A limited company operated a trade as a retail seller of ladies clothing from leasehold shop premises. The company’s normal accounting reference date is 31 December.

On 18 August 2011 the company sold the business and received payment for goodwill, leasehold, stock and fixtures.

The company has a further leasehold interest in office accommodation, which some years ago became surplus to its own requirements. These premises are sublet, rent receivable being exactly equal to rent payable.

My questions are as follows:

  • In calculating the company’s profits chargeable to corporation tax, do I need to do so for the period 1 January to 18 August 2011, treating the latter date as the end of a corporation tax accounting period, because of the disposal of the retail trade on that date?
  • If that is the case and the company’s accounting date remains 31 December, another corporation tax accounting period would presumably have started on 19 August and ended on 31 December 2011. I assume that during this period, and in future years, the company is a close investment company, since its only source of income is rent receivable from the sublet.
  • Assuming that the above is correct, i.e. that there are two separate corporation tax accounting periods, is there a practical way to divide income and expenditure between the two periods? Clearly all retail sales, costs of sales and leasehold shop costs would be included in the period to 18 August, but would it be acceptable to divide rent receivable and all other overhead expenses between the two periods on a time-apportionment basis?
  • Am I missing anything else?!!!

Many thanks for any guidance and assistance.


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25th May 2012 09:13


A CT AP ends whenever a company ceases as trade (and immediately before it starts one). So its first AP ends when it ceases the trade on 18 August (when it sells it), and as you say, because it remains within the charge to CT, another AP commences, which will end on 31 December.

I'd say that the rental income and rental expense needs to be time-apportioned between the periods.

To the extent though that general overheads, that would be treated as management charges in the 2nd AP, I'd be inclined to treat them as trading expenses, as far as possible (to the extent that the obligation to incur the expense arose before the company ceased trading).

To the extent that these general overheads arise after the cessation, the management expenses will not be relievable (unless you make a future chargeable gain - as you can't carry them back), because there won't be any rental profit.

Thanks (1)
By jonkaye
to Manchester_man
25th May 2012 09:21

Thank you


Many thanks for taking the time to reply and for reassuring me regarding my understanding of the situation.

Kind regards.


Thanks (0)
By jonkaye
to Manchester_man
25th May 2012 09:56

Supplementary question re disposal of lease

I'm suddenly having doubts about the chargeable gain arising on the disposal of the leasehold interest.

A premium of £40,000 was paid for the original lease in March 2002, when it still had an unexpired term of about 7 years. Following the expiration of this lease in 2009, a new 10-year lease was granted from September 2009, with no premium payable. Legal fees and stamp duty of approximately £4,000 were paid. This lease was then sold for £50,000 in August 2011.

Am I right to assume that no part of the original cost of £40,000 can be claimed, since that lease has entirely wasted away?

In addition, do I need to restrict even the £4,000 fees/costs in accordance with the actuarial table for short leases by the figures for 9 years 1 month/10 years?

Many thanks again for further clarification.

Thanks (0)
25th May 2012 11:21

What you're saying...

... makes perfect sense to me.  The £40 relates to the old lease, not the new lease. What seems strange is that the landlord is willing to grant a new lease for no premium, yet money changes hands when it's assigned.

I'd consider the legal fees, etc to be part of the cost for CGT, to which the lease table should be applied, if you didn't claim those costs against profits at the time. HMRC will allow the costs relating to the renewal of a short lease.

Thanks (1)
By jonkaye
25th May 2012 11:35

Thank you again

Many thanks again, Steve.

Kind regards.


Thanks (0)