Income and Corporation Taxes Act 1988

Cessations and liquidations

10 (1) Where a close company ceases to carry on the trade, or the business of holding investments, in which its activities wholly or mainly consisted, the relevant income of the company for any accounting period in which that event occurs, or which ends in or within the 12 months ending with that event, shall be calculated as if—

(a) paragraph 1(1)(a) and (b)(i) above referred respectively to the whole of the company’s distributable income other than trading income and to the whole of the estate or trading income and not to so much thereof as can be distributed without prejudice to the requirements there mentioned, and paragraphs 1(2)(a) and 8 above were omitted;

(b) in paragraph 2(1) above the words “50 per cent. of” were omitted.

(2) Where sub-paragraph (1) above applies for an accounting period and the company could not make distributions without prejudice to the claims of creditors (excluding those mentioned in sub-paragraph (3) below), the excess mentioned in section 424(1) shall be disregarded to the extent to which the company could not make distributions up to the amount of its relevant income without prejudice to those claims.

(3) Subject to sub-paragraph (4) below, the creditors to be excluded for the purposes of sub-paragraph (2) above are all participators and associates of participators, and all creditors in respect of debts originally created in favour of or due to a person who was then a participator or associate of a participator.

(4) A creditor is not to be excluded in respect of any debt which either—

(a) arose in the ordinary course of the company’s trade or the company’s business of holding investments and also in the ordinary course of a trade or profession of the creditor or, as the case may be, of the participator or associate who was the original creditor; or

(b) is a debt for remuneration chargeable to income tax under Schedule E; or

(c) is a debt for any rent or other payment due for the use of tangible property or of copyright in a literary, dramatic, musical or artistic work within the meaning of the [1956 c. 74.] Copyright Act 1956 (or any corresponding right under the law of a country to which that Act does not extend), and not representing more than a reasonable commercial consideration for that use.

(5) Where sub-paragraph (1) above applies for any accounting period, there shall be disregarded for the purposes of any apportionment made by virtue of section 424(2) so much of the relevant income of the company for that period as is equal to the amount which would be disregarded under sub-paragraph (2) above.

(6) Where a resolution is passed or an order is made for the winding up of a close company, or where any other act is done for a like purpose in the case of a winding up otherwise than under the [1986 c. 45.] Insolvency Act 1986, sub-paragraphs (1) to (5) above shall apply for any accounting period ending in or with the 12 months ending with the passing of the resolution or other event, or for any later accounting period, as they apply, in a case falling within sub-paragraph (1) above, for an accounting period in which a close company ceases to carry on a trade.