CLOSE COMPANIES: ACQUISITION OF TRADES (Hansard, 13 July 1978)

§ Mr. Denzil Davies
I beg to move amendment no. 136, in page 22, line 16, at end insert— 1748 'or of an interest in a trading company or in a company which is a member of a trading group'.

§ Mr. Speaker
I understand that it will be convenient to discuss at the same time Government amendments nos. 137 to 145 and 148 to 153.

§ Mr. Davies
Amendments nos. 146 and 147, which are in this list, come later on the Amendment Paper but they come with this group, as they all relate to schedule 5. Perhaps I might therefore deal with all of them together.
This group of amendments fulfils three undertakings which Ministers gave in Committee—the first to change and the other two to clarify the intention of the new apportionment rules about acquisition of trades. The amendments to lines 40 and 41 on page 68 restrict those who can count as associates for the purpose of the control tests used in deciding whether companies are associated. As the Bill is drafted, children or "remoter issue" of directors of the company being considered count as associates. Under the amendments, they will count only if they are infants at the relevant time.
I also said in Committee that I would see whether it was preferable to put into legislation the intention to apply the wording "acquisition of a trade" to the acquisition not of the trade itself but, as so often happens, of control of the company carrying on the trade. The amendments also fulfil that undertaking.
The amendments also deal with first business loans and with various technical matters relating to paragraph 8 of schedule 16 of the Finance Act 1972.

§ Mr. Peter Rees (Dover and Deal)
We welcome the amendments and we are grateful to the Minister of State for having been so open-minded on the question. We are glad that he has adopted the suggestions that we made in Committee.

§ Mr. Graham Page (Crosby)
I beg to move amendment no. 190, in page 22, line 19, at end insert 'irrespective of whether the acquisition takes place before or after that date'. Clause 31 introduces new rules for ascertaining the relevant income of close 1749 companies—a technical phrase but something of vital importance to small companies, such as family companies, which are small in the number of members that they may have. Part II of schedule 16 of the Finance Act 1972, which is mentioned in the first line of clause 31, lays out the rules for charging to income tax in respect of shortfall and distributions of close companies and the apportionment to participators.
To put it briefly, if more than half the income can be apportioned between five or fewer participators, it is charged to tax, as it were in the hands of those participators, even though not distributed. Therefore, it is important to ascertain what is the relevant income which must be assumed in that way to be distributed or to be available for distribution.
In determining the relevant income, the new provisions inserted by clause 31 say that one can take into account the requirements of the company for the acquisition of a trade. That is very welcome as an extension of the relief given to close companies which are expanding and purchasing new businesses.
One assumes from this that the purchase price of a new business or of equipping the premises of a new business with, for example, plant, or the use of working capital for a new business, will in future be deductible from the income in order to reach the relevant income which may be assumed to be apportioned among the participators.
Subsection (2) says that this new relief will have effect …with respect to accounting periods end-on or after 11th April 1978. There is considerable doubt about the effect of that when is speaks of "accounting periods" and of taking into account …the requirements of a company for the acquisition of a trade. The doubt arises on the question whether that refers to the acquisition of a new trade by the close company before 11th April 1978 as well as afterwards.
An example is the case in which the business has been acquired before the 1977–78 accounting period—perhaps in the period 1976–77—and is being paid for by instalments. One hopes that the clause is clear enough and that those instalments can be brought into account and receive 1750 the relief given under clause 31, but it does not seem certain that that is so.
I therefore seek to make this matter clear with the amendment by adding the words irrespective of whether the acquisition takes place before or after that date at the end of subsection (2).

§ Mr. Denzil Davies
The right hon. Gentleman seeks in this amendment to clarify—as he sees it—the present provisions. My brief says "Resist as unnecessary." It is the Inland Revenue's view that the position is clear and that the amendment is not necessary. However, as the right hon. Gentleman puts his points so reasonably and as—as far as I can see—the amendment will do no harm and might make the position clear to those who feel that it is not clear, I am happy to accept it.