Ch.3 - Corporation tax losses

Question 1

What trading losses are available to corporations?

Answer 1

Trading profits:

• s.45A cf loss relief
• s.37 - CY and PY relief
• s.39 - terminal loss relief

NLTR decifit:

• CY
• PY
• carry forward (cf)

Property loss
- automatic against total profits

Capital loss:

• CY
• cf

Question 2

What is the priority of the loss relief claims?

Answer 2

1. CY NTLR deficits
2. CY property losses
3. CY trading losses

Question 3

What restriction is there to limit loss relief claims?

Answer 3

Limit on losses cf = annual deductions allowance of £5m plus 50% of excess profits over this limit.

Prior 1 April 2017 - loss is used against trading profits ONLY!

Question 4

What is CY and PY loss relief claim?

Answer 4

• offset against total profits (before QCDs
• must elect
• first must use in CY, then in PY
• no partial election, may waste QCDs

Question 5

What is cf loss relief claim?

Answer 5

Pre 1 April 2017

• automatically offset against first available future profits of the same trade
• partial claim can be made to preserve QCDs

Post 1 April 2017

• automatically offset against total profits
• partial claim can be made to preserve QCDs

Question 6

What is terminal loss relief?

Answer 6

• election can be made to carry back losses up to 36m from the beginning of the period in which the relevant part of the loss was made on LIFO basis
• therefore, if final period is short period of accounts and terminal loss has been divided between periods, loss must be relieved in chronological order as and when occurred
• CY claim must be made first, then prior years

Question 7

How are NTLR deficits treated?

Answer 7

Pre 1 April 2017:
CY claim:
- set off against total profits in the CY
- partial claim available to preserve QCDs
- given after s.45 but before s.37

PY claim:
- set off against NTLR profits in the PY

Cf relief:

• set off against non-trading future profits
• partial claim available to preserve QCDs

Post 1 April 2017 (same as above except for cf relief):
Cf relief:
- set off against total future profits
- partial claim available

Question 8

How are property losses relieved?

Answer 8

• automatic relief against total profits before QCDs in CY
• no partial claim available as it is automatic
• excess if cf and election can be made to use gaianst total profits before QCDs
• partial future claim is possible to preserve QCDs (only for period after 1 April 2017 - no partial claim before 1 April 2017)

Question 9

How are capital losses relieved?

Answer 9

• CY losses are offset against CY gains

- remaining losses are cf against first available future gains

Question 10

What influencing the choice of tax relief in tax planning ?

Answer 10

1. Timing
   - CY/PY saves tax now, generates CF and may help with cash problems
   - cf have to wait
   - future profits are uncertain
   - rates of corporation tax are falling (expected to fall to 17% by FY2020
2. Amount
   - avoid wasting QCDs. Unrelieved QCDs cannot be cf against future profits. Therefore certain claims may lead to QCDs being wasted. Cf claim can be done in part to avoid wasting QCDs.
3. Payment of CT
   - if augmented profits are large company limit, must pay by installments. Loss relief could therefore reduce profits and cause CT to be paid at later date.

Question 11

What are loss relief restrictions with change in ownership (CIO)?

Answer 11

Trading losses cannot be carrief forward/back past the date of CIO.