Corporation Tax

SSE and the trading requirement

Produced by Tolley
  • 19 Oct 2021 23:04

The following Corporation Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • SSE and the trading requirement
  • SSE ― the trading condition
  • What is a trading company?
  • SSE ― substantial income of a non-trading nature
  • SSE ― during the course of a trade and investments
  • SSE ― change of trading activities
  • SSE and the trading requirement ― further considerations

SSE and the trading requirement

SSE ― the trading condition

The commentary set out in this guidance note covers the current substantial shareholding exemption (SSE) regime. For further details of the regime, see Simon’s Taxes Division D1.10 and for details of the regime as it applied before 1 April 2017, please see Simon’s Taxes D1.1071.

What is a trading company?

One of the conditions that must be satisfied by the investee company for the purposes of the SSE is that it must be trading company or the holding company of a trading group or a trading sub-group. A holding company means the principal company of the group or, in the case of a subgroup, the entity that would be the principal company of that subgroup except that it is itself a subsidiary of another company. This means that a non-trading member (which is not itself a holding company) of a trading group would not qualify.

The trading conditions must also be met in certain circumstances by the investee company immediately after the disposal.

The other main conditions are set out in the Cases in which SSE applies guidance note.

The SSE legislation defines ‘trade’ as a trade, profession or vocation within the meaning of the Income Tax Acts, which must be conducted on a commercial basis with the intention of realising profits.

A particular definition also applies to the terms ‘trading company’, ‘trading group’ and ‘trading sub-group’ (see TCGA 1992, Sch 7AC, Part 3, paras 20, 21 and 22 respectively). In each case, the activities of the company, group or sub-group must not include substantial amounts of non-trading activities, such as the passive holding of investments.

SSE ― substantial income of a non-trading nature

‘Substantial’ is generally interpreted by HMRC to be more than 20%.

CG53116 provides further clarification on its interpretation of the meaning of substantial as:

  1. over 20% of turnover made up of investment income

  2. over 20% of the asset base made up of non-trading assets

  3. over 20% of the

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