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Barking at the moon

The recent Special Commissioners' case of Barkers of Malton Limited is yet another reminder of the importance of what we believe our transatlantic cousins call "sweating the small stuff" (by which we understand them to mean getting the details right).

The case was about the preservation of trading losses under s343 on the hive-down of a loss-making business to a subsidiary which was then sold. In such circumstances losses are preserved both on the intra-group transfer of the business on hive-down to the subsidiary and also on any subsequent intra-group transfer of the business from the subsidiary to the purchaser (subject to the anti-avoidance rules at s768, which were not in point here). In principle the hive-down - sale - hive-up route is not objectionable as a strategy to preserve losses but it is important that the trade is in fact actually carried on by the "carrier" subsidiary at some point. And that was the problem in Barkers. When the garage (for such it was) opened for business at 9:00 am the trade was being carried on by the old company: by 10:30 it was being carried on by the new company, having in the interim been hived down, the subsidiary sold and the trade hived up. And all the while the mechanics were happily mechanicking blissfully unaware of the changes whirling around them. The problem is obvious: how can you show that the "carrier" subsidiary was actually carrying on the trade for those 90 minutes?

Transferring legal title to assets, novating contracts, transferring employees, opening a bank account, notifying customers and performing (twice in 90 minutes) all the usual steps to transfer a trade is not practicable. Demonstrating that the old company carried on the trade as undisclosed agent for the "carrier" company should suffice, though leaving a rather bigger gap than 90 minutes would be desirable where practicable, so that there are in fact transactions with third parties made in the period of trading by the carrier. What is unhelpful, as Barkers found, is for the minutes to misrecord what actually happened at the relevant board meetings and for the subsequent Corporation Tax return for the "carrier" to assert that "the company has not traded"!

All in all, a salutary reminder that dotting i's and crossing t's still matters.