Income and Corporation Taxes Act 1988

297 Qualifying trades. F1 U.K.

(1) M1 F2 . . . A trade is a qualifying trade if it complies with the requirements of this section.

(2) M2 Subject to subsection (9) below, the trade must not at any time in the relevant period consist of one or more of the following activities if that activity amounts, or those activities when taken together amount, to a substantial part of the trade—

(a) dealing in [F3 land, in commodities or futures or in shares, securities or other financial instruments];

(b) dealing in goods otherwise than in the course of an ordinary trade of wholesale or retail distribution;

(c) banking, insurance, money-lending, debt-factoring, hire-purchase financing or other financial activities;

(d) F4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(e) leasing (including letting ships on charter or other assets on hire) or receiving royalties or licence fees;

(f) providing legal or accountancy services;

[F5 (fa) property development;

(fb) farming or market gardening;

(fc) holding, managing or occupying woodlands, any other forestry activities or timber production;

(fd) operating or managing hotels or comparable establishments or managing property used as an hotel or comparable establishment;

(fe) operating or managing nursing homes or residential care homes, or managing property used as a nursing home or residential care home;]

(g) providing services or facilities for any trade carried on by another person [F6 (other than a company of which the company providing the services or facilities is the subsidiary)] which consists to any substantial extent of activities within any of paragraphs (a) to [F7 (fe)] above and in which a controlling interest is held by a person who also has a controlling interest in the trade carried on by the company;

(h) F8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(j) F8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3) M3 For the purposes of subsection (2)(b) above—

(a) a trade of wholesale distribution is one in which the goods are offered for sale and sold to persons for resale by them, or for processing and resale by them, to members of the general public for their use or consumption;

(b) a trade of retail distribution is one in which the goods are offered for sale and sold to members of the general public for their use or consumption;

(c) a trade is not an ordinary trade of wholesale or retail distribution if—

(i) it consists to a substantial extent of dealing in goods of a kind which are collected or held as an investment or of that activity and any other activity of a kind falling within subsection [F9 (2)(a) to (g)] above, taken together; and

(ii) a substantial proportion of those goods are held by the company for a period which is significantly longer than the period for which a vendor would reasonably be expected to hold them while endeavouring to dispose of them at their market value; and

(d) in determining whether a trade is an ordinary trade of wholesale or retail distribution regard shall be had to the extent to which it has the following features, that is to say—

(i) the goods are bought by the trader in quantities larger than those in which he sells them;

(ii) the goods are bought and sold by the trader in different markets;

(iii) the trader employs staff and incurs expenses in the trade in addition to the cost of the goods and, in the case of a trade carried on by a company, in addition to any remuneration paid to any person connected with it;

(iv) there are purchases or sales from or to persons who are connected with the trader;

(v) purchases are matched with forward sales or vice versa;

(vi) the goods are held by the trader for longer than is normal for goods of the kind in question;

(vii) the trade is carried on otherwise than at a place or places commonly used for wholesale or retail trade;

(viii) the trader does not take physical possession of the goods;

those features in sub-paragraphs (i) to (iii) being regarded as indications that the trade is such an ordinary trade and those in sub-paragraphs (iv) to (viii) being regarded as indications of the contrary.

[F10 (3A) For the purposes of this Chapter the activities of a person shall not be taken to fall within paragraph (fd) or (fe) of subsection (2) above except where that person has an estate or interest in, or is in occupation of, the hotels or comparable establishments or, as the case may be, the nursing homes or residential care homes.]

[F11 (4) A trade shall not be treated as failing to comply with this section by reason only that at some time in the relevant period it consists to a substantial extent in the receiving of royalties or licence fees if the royalties and licence fees (or all but for a part that is not a substantial part in terms of value) are attributable to the exploitation of relevant intangible assets.

(5) For this purpose an intangible asset is a “relevant intangible asset” if the whole or greater part (in terms of value) of it has been created—

(a) by the company carrying on the trade, or

(b) by a company which at all times during which it created the intangible asset was—

(i) the parent company of the company carrying on the trade, or

(ii) a qualifying subsidiary of that parent company.

(5A) For the purposes of subsection (5) above—

(a) in the case of an intangible asset that is intellectual property, references to the creation of the asset by a company are to its creation in circumstances in which the right to exploit it vests in the company (whether alone or jointly with others);

(b) “parent company” means a company that—

(i) has one or more 51% subsidiaries, but

(ii) is not itself a 51% subsidiary of another company; and

(c) a subsidiary of the parent company referred to in subsection (5)(b) above is a “qualifying subsidiary" of that company if it is a subsidiary of a kind which the parent company may hold by virtue of section 308.

For the purposes of paragraph (c) above, section 308 shall have effect as if the references in that section to the qualifying company were to that parent company.

(5B) For the purposes of subsections (4) to (5A) above “intangible asset” means any asset which falls to be treated as an intangible asset in accordance with [F12 generally accepted accounting practice].

F13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(5C) In subsection (5A)(a) above “intellectual property” means—

(a) any patent, trade mark, registered design, copyright, design right, performer’s right or plant breeder’s right; and

(b) any rights under the law of a country or territory outside the United Kingdom which correspond or are similar to those falling within paragraph (a) above.]

(6) M4 A trade shall not be treated as failing to comply with this section by reason only of its consisting of letting ships, other than [F14 offshore installations] or pleasure craft, on charter if—

(a) every ship let on charter by the company carrying on the trade is beneficially owned by the company;

(b) every ship beneficially owned by the company is registered in the United Kingdom; and

(c) throughout the relevant period the company is solely responsible for arranging the marketing of the services of its ships; and

(d) the conditions mentioned in subsection (7) below are satisfied in relation to every letting on charter by the company;

but where any of the requirements mentioned in paragraphs (a) to (d) above are not satisfied in relation to any lettings of such ships, the trade shall not thereby be treated as failing to comply with this section if those lettings and any other activity of a kind falling within subsection [F9 (2)(a) to (g)] above do not, when taken together, amount to a substantial part of the trade.

(7) The conditions are that—

(a) the letting is for a period not exceeding 12 months and no provision is made at any time (whether in the lease or otherwise) for extending it beyond that period otherwise than at the option of the lessee;

(b) during the period of the letting there is no provision in force (whether made in the lease or otherwise) for the grant of a new letting to end, otherwise than at the option of the lessee, more than 12 months after that provision is made;

(c) the letting is by way of a bargain made at arm’s length between the company and a person who is not connected with it;

(d) under the terms of the charter the company is responsible as principal—

(i) for taking, throughout the period of the charter, management decisions in relation to the ship, other than those of a kind generally regarded by persons engaged in trade of the kind in question as matters of husbandry; and

(ii) for defraying all expenses in connection with the ship throughout that period, or substantially all such expenses, other than those directly incidental to a particular voyage or to the employment of the ship during that period; and

(e) no arrangements exist by virtue of which a person other than the company may be appointed to be responsible for the matters mentioned in paragraph (d) above on behalf of the company;

but this subsection shall have effect, in relation to any letting between the company in question and its subsidiary, or between it and another company of which it is a subsidiary or between it and a company which is a subsidiary of the same company of which it is a subsidiary, as if paragraph (c) were omitted.

(8) M5 The trade must, during the relevant period, be conducted on a commercial basis and with a view to the realisation of profits.

(9) F15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F1 Ss.297-298omitted by 1988(F) Sch.4 para.8where s.50 (changes applicable in respect of shares issued on or after 29July 1988and before the end of 1993in respect of private rented housing)applies.

F2 Words in s. 297(1) repealed (with effect as mentioned in s. 74(3), Sch. 27 Pt. 3(14) Note of the repealing Act) by Finance Act 1998 (c. 36), Sch. 13 para 10, Sch. 27 Pt. 3(14)

F3 Words in s. 297(2)(a) substituted (with effect as mentioned in s. 137(1)(2) of the amending Act) by Finance Act 1994 (c. 9), Sch. 15 para. 10(b)(i)

F4 S. 297(2)(d) repealed (with effect as mentioned in Sch. 15 para. 40(2) of the repealing Act) by Finance Act 2001 (c. 9), Sch. 15 para. 5(a), Sch. 33 Pt. 2(3), Note 6

F5 S. 297(2)(fa)-(fe) inserted (with effect as mentioned in Sch. 12 para. 5(1) of the amending Act) by Finance Act 1998 (c. 36), Sch. 12 para. 1(1)

F6 Words in s. 297(2)(g) inserted (with effect as mentioned in s. 137(1)(2) of the amending Act) by Finance Act 1994 (c. 9), Sch. 15 para. 10(b)(ii)

F7 Word in s. 297(2)(g) substituted (with effect as mentioned in Sch. 12 para. 5(1) of the amending Act) by Finance Act 1998 (c. 36), Sch. 12 para. 1(2)

F8 S. 297(2)(h)(j) repealed (with effect as mentioned in s. 137(1)(2), Sch. 26 Pt. 5(17) Note of the repealing Act) by Finance Act 1994 (c. 9), Sch. 15 para. 10(b)(iii), Sch. 26 Pt. 5(17)

F9 Words in s. 297(3)(c)(i)(6) substituted (with effect as mentioned in Sch. 8 para. 1 of the amending Act) by Finance Act 1997 (c. 16), Sch. 8 para. 5

F10 S. 297(3A) inserted (with effect as mentioned in Sch. 12 para. 5(1) of the amending Act) by Finance Act 1998 (c. 36), Sch. 12 para. 1(3)

F11 S. 297(4)-(5C) substituted for s. 297(4)(5) (with effect as mentioned in Sch. 17 para. 13(2) of the amending Act) by Finance Act 2000 (c. 17), Sch. 17 para. 13(1)

F12 Words in s. 297(5B) substituted (24.7.2002) by Finance Act 2002 (c. 23), s. 103(4)(a)

F13 Words in s. 297(5B) repealed (24.7.2002) by Finance Act 2002 (c. 23), Sch. 40 Pt. 3(16)

F14 Words in s. 297(6) substituted (with effect in accordance with Sch. 27 para. 4(5) of the amending Act) by Finance Act 2004 (c. 12), Sch. 27 para. 4(3) (with Sch. 27 para. 4(6))

F15 S. 297(9) repealed (with effect as mentioned in Sch. 15 para. 40(2) of the repealing Act) by Finance Act 2001 (c. 9), Sch. 15 para. 5(b), Sch. 33 Pt. 2(3), Note 6

Marginal Citations

M1 Source-1983 Sch.5 6(1)

M2 Source-1983 Sch.5 6(2); 1986 Sch.9 8(2)

M3 Source-1983 Sch.5 6(4); 1986 Sch.9 8(4); 1981 s.56(3), Sch.11

M4 Source-1983 Sch.5 6(2B), (2C); 1984 s.37(2); 1986 Sch.9 8(3)

M5 Source-1983 Sch.5 6(3)