HMRC have recently won a case before the Upper Tier Tribunal that the trading losses of a competitor company could not be set off against the profits of the acquiring company following the merger of the trades of the two companies. The two companies in question were both involved in the retail trade where 4 loss making department stores were merged with 3 profitable stores. The court held that the trading losses should be streamed and could only be set against future profits of the 4 loss making stores, overturning a previous decision by the First Tier Tribunal.
Buying the trade and assets of the target company
Note that if instead of buying the loss-making company, the trade and assets are acquired, then the trading losses will lapse and will not be available to the purchasing company. This however may be commercially more attractive as the purchaser will not take over the liabilities of the vendor company
Other important tax considerations would be the transfer of plant and machinery, including fixtures, at market value rather than tax written down value, and the ability to obtain corporation tax relief for the value of intangibles, but not goodwill.
Remember to get in touch with us if you need support in connection with buying or selling a business.