Corporation Tax Losses Flashcards
CT: Property Losses
A property loss is first set off against total profits for the accounting period in which the loss arose.
Any remaining loss is carried forward to the next accounting period.
A claim can be made to offset the carried forward loss as if it were a property loss of that next accounting period (ie can be offset against total profits of that accounting period, not just against property income as for an individual)
A claim must be made within two years of the end of the accounting period of relief to specify whether all or any part of the loss is to be offset. Any remaining property loss can be carried forward to subsequent periods and claims made as required until the loss is fully relieved. Where a company has large losses carried forward there may be restrictions as to how much of the loss can be relieved.
Group loss is also available for a property loss.
Capital losses
A capital loss is first set off against other gains for the accounting period in which the loss arose. Any remaining loss is carried forward to be set off against the first available gains.
There are ways in which capital losses may be set against gains in a group.
Trading losses
- The trading taxable amount will be NIL
- the company may be able to claim tax relief for the trading loss
The loss may be relieved by setting it off against
- total profits of the current accounting period; then
- total profits of an earlier accounting period.
Alternatively, or if there is any remaining loss, the loss can be carried forward to be set against future total profits.
The carry forward loss relief is not automatic and a claim must be made within two years of the accounting period in which it is relieved. The brought forward trade loss does not need to be used in full, but the amount of loss relief is specified in the claim. The amount relieved may be subject to certain restrictions if the loss carried forward is large. Any remaining loss can be carried forward and used in subsequent accounting periods in the same way.
Carry forward of losses
Applies to carry forward of
- trading losses (CTA 2010 s45A)
- non trading loan relationship deficits and
- UK property business losses
Any of these losses which are not used in another claim or are left unused are carried forward and a claim can be made to offset the losses against the total profits of he company in the following accounting period.
The loss relief is not automatic
A claim must be made within 2 years of year loss is relieved
Loss does not need to be used in full but claim must specify amount to be used (restrict to preserve charitable donations)
certain restrictions may apply
CT: Restriction on carried forward relief
There is a limit to the amount of profits that can be relieved by losses carried forward
For a single company the profits which can be relieved are limited to a ‘deductions allowance’ of £5 million per 12 month period, plus 50% of excess profits over this amount
If there is a corporate group the £5 million allowance has to be allocated between the companies in the group by the group’s nominated company.
CT: Current period and carry back reliefs (s.37 CTA 2010)
Under s.37(3)(a) a trading loss arising in an accounting period may be set (ie optional) against a company’s total profits in the same accounting period.
Under 37(3)(b) any remaining loss may then be carried back (ie optional) and set against the company’s total profits of the preceding 12 months
Note that the loss can only be carried back after a current accounting period claim is made. However, it is possible to make the claim to set the loss off only in the current period. In both cases the maximum amount of loss relief must be taken.
As a result of making a loss relief claim, qualifying donations may become unrelieved.
CT: How s.37 relief is claimed
A claiim for s37 loss relief must be made within two years of the end of the accounting period in which the loss is made.
CT: terminal loss relief
S37 loss relief is also available where a trading loss is incurred int he twelve months before the trade ceases. In this case the loss may be carried back against the company’s total profits for the preceding thirty six months on a LIFO basis.
CT: Relief for deficit on non-trading loan relationships
A company which has a non trading loan relationship deficit may set off the whole or part of that deficit against any profits of the same accounting period.Note the difference between this and s.37 reliefs which do not allow a partial relief claim.
The maximum s463B clai is calculated as total profits before
- relief under s.37 for trade losses offset in current period or carried back
- relief under s463B for a NTLR deficit carried back from a later accounting period and
- relief under s45A for trading losses carried forward
Alternatively, or in addition, any remaining deficit may be wholly or partly surrendered to any company in a gropu
Alternatively or in addition it may be set against profits of non trading loan relationships of the previous 12 months
Any remaining balance is then carried forward and may be set against total profits of future accounting periods or surrendered as group relief
CT: Priority of loss relief claims
If there are several types of losses, current period losses are set against total profits in the following order
- deficits on non-trading loan relationships
- property business loans
- trading losses of the current period
CT: how s.463B relief is claimed
within two years of the end of the accounting period in which the deficit arose.
If the NTLR deficit is to be carried forward and offset in the subsequent accounting period, this claim must be made within two years after the end of the first accounting period after the deficit.
