The term trading company is used for the purpose of defining the requirements to be met by the target company (see D1.1031) for the SSE to apply.
A trading company is defined as one carrying on 'trading activities'1 (defined below). The investee company does not need to be UK resident for SSE to apply. In addition, the trading activities do not need to be carried out in the UK — a company with an overseas trading permanent establishment could therefore qualify for SSE.
Non-trading activities are permitted provided they do not represent a 'substantial' part of the company's total activities2. The word substantial is not defined in the SSE legislation for this purpose. The fact that the 'substantial shareholding' requirement is a holding of not less than 10% is without prejudice to what is meant by 'substantial' in other contexts in the SSE legislation3. HMRC has stated that substantial in this context is taken to mean more than 20% and the comparison is made of gross amounts. HMRC considers the proportion
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