Income Tax Act 2007 section 257MK

Ceasing to meet trading requirement: administration or receivership

Section 257MK explains when a social enterprise that enters administration or receivership can still be treated as meeting the trading requirement for social investment tax relief purposes.

• A social enterprise does not automatically fail the trading requirement simply because it or a subsidiary enters administration or receivership, provided this is done for genuine commercial reasons and not for tax avoidance.
• All actions taken as a consequence of the administration or receivership must also be for genuine commercial reasons and not part of a tax avoidance arrangement.
• The social enterprise will, however, fail the trading requirement if, before the end of the shorter applicable period, it or a subsidiary is wound up or dissolved — unless that winding-up or dissolution is itself for genuine commercial reasons and not motivated by tax avoidance.
• The winding-up or dissolution exception covers resolutions, court orders, equivalent acts under legislation other than the Insolvency Act 1986 or the Insolvency (Northern Ireland) Order 1989, and dissolution without a formal winding-up process.