Inland Revenue

These relatively new provisions enable a company to carry forward tax losses, even though there has been a breach of what we call shareholder continuity so long ...

In order for them to apply there has to be an arrangement, the effect of which is the company has a tax liability whether an existing one or one which arises later which it cannot meet. Businesses might therefore be a little cautious about how they might invest if they felt there was a reasonable prospect of a windfall tax applying. As people should be aware part of that response involves a cost-of-living payment of $350, which Inland Revenue is now about to start paying, even though there's about 160,000 people for whom it doesn't have any bank details and who may therefore miss out on these payments. It must also be reasonable to conclude that a purpose of this arrangement was that the company could not meet that tax liability. And an issue that popped up this week was the question of windfall taxes which have re-emerged as tools in perhaps in fighting inflation. There's also been plenty of debate about what's causing the spike of inflation and what can be done about that. But as even it has been a major change in the nature of the business activities carried on, the business continuity test may still be satisfied if that change is one of four permitted changes. As I've said, these provisions have been around for a while but have not seen much use of them, which also makes it uncertain when advising clients as to what could happen. The key thing is determining what is the nature of business activities and have they continued? When the Covid-19 pandemic hit in March 2020, one of the Government's first responses was to introduce these business continuity provisions which took effect from the start of the 2020-21 income year. In other words, there's a five-year cap on the ability to use these provisions. If there's been a breach, you lose all the losses, and they may no longer be carried forward.