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TCGA92/SCH7AC/PARA20

Paragraph 20 Schedule 7AC TCGA 1992 contains the definition of ‘trading company� that applies for the purposes of the substantial shareholdings exemption regime. A ‘trading company� is a company

• that carries on ‘trading activitiesâ€�, (see CG53113) and
• whose activities do not to a substantial extent include activities that are not trading activities.

Paragraph 20 also explains what is meant by ‘trading activitiesâ€� for these purposes. »Ê¹ÚÌåÓýappse are activities carried on by a company

• in the course of, or for the purposes of, a trade it is carrying on (CG53113b);
• for the purposes of a trade it is preparing to carry on (CG53113c);
• with a view to it acquiring or starting to carry on a trade (CG53113d);
• with a view to it acquiring a significant interest in the share capital of a trading company, or the holding company of a trading group or subgroup (subject to the restrictions outlined below) (C53113d).

»Ê¹ÚÌåÓýappre are two restrictions. First, the last two types of activity only count as trading activities if an acquisition is made, or the company starts to carry on a trade, as soon as is reasonably practicable in the circumstances (CG53113e).

Second, for last type of activity the acquisition will only count as significant if

• it is an acquisition of ordinary share capital, and
• the company whose shares are to be acquired (Target) is not already a member of the same group (CG53006 explains what is a group for the purposes of the substantial shareholdings legislation) as the acquiring company (Acquirer), and the shares to be acquired would either

• make Target a 51% subsidiary (CG53006 explains what is a 51% subsidiary for the purposes of the substantial shareholdings legislation)of Acquirer, or
• give Acquirer a qualifying shareholding in a joint venture company without making the two companies members of the same group.

Note that there are special rules for companies that have a ‘qualifying shareholdingâ€� in a ‘joint venture companyâ€� - see CG53114. »Ê¹ÚÌåÓýappre is guidance on how you might measure the extent of a company’s activities, and what we understand to be meant by ‘substantial in this context, at CG53116. »Ê¹ÚÌåÓýapp same definitions of trading company and trading activities were brought into the taper relief regime by Finance Act 2002 for time from 17 April 2002.