It is normally an easy exercise to determine whether a business has ceased. For instance, a lone trader may simply decide to stop working. However, what is the position if the sole trader ends a business and starts a different one – has there been a cessation of the ‘old’ business? For capital increases taxes purposes, the cessation of an unincorporated business can provide rise to an opportunity to state entrepreneurs’ comfort.
The alleviation applies (among other things) to a material’s disposal of business resources. Thus for business owners’ relief purposes, it’s important to consider not only whether the businesses ceased but (if so) the time of cessation and if the business assets were sold within the relevant three 12 months period. Year period is a statutory time limit HMRC points out that this three, and that there is no discretion to extend it (CG64045).
UKFTT 132 (TC), the taxpayer was an only trader offering used cars. He operated the business from premises (‘Fletton Avenue’) comprising a small showroom and forecourt. Because of issues with vandalism, the taxpayer ceased trading from those premises, which were eventually sold. The taxpayer subsequently started selling used cars from a niche site adjoining his home (‘Four Acres’).
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He claimed business owners’ relief on the disposal of the initial business premises (under TCGA 1992, s 169I). HMRC rejected entrepreneurs’ alleviation, and the taxpayer appealed. The real factors in dispute were whether the taxpayer had ceased trading and if so, the time of cessation. In the Rice case, aside from the change of location, there have been significant differences between your ‘old’ and ‘new’ businesses managed by the taxpayer. Planning authorization for the Four Acres site was restricted by the neighborhood council.
The display of vehicles for sale to the general public was not allowed. The restrictions designed that the taxpayer needed to perform his business by advertising on the internet, which he had not done previously. There is no forecourt at Four Acres displaying cars to the general public, and for that reason no passing trade (unlike the taxpayer’s business at Fletton Avenue). Prospective customers had to make a scheduled appointment if they wanted to inspect a particular vehicle. The taxpayer’s business at Fletton Avenue focused on ‘sporty’ vehicles, whereas the Four Acres car sale business focused on four-wheel drive and family vehicles.
These differences appear to have been important factors in the tribunal’s decision in the above-mentioned case that there have been a cessation of trade. Of course, no two situations will be the same and whether there’s been a cessation of trade will depend on the known facts of every specific case.