CTM04125 - Corporation tax: trading losses: general: relief for losses carried forward: losses incurred from 1 April 2017: subsequent periods

CTA10/S45A to 45E

S45A and S45B allow a company to carry forward trade losses from the period in which they are incurred to the next accounting period.

In many cases, where those losses are not fully relieved in the next accounting period, the company will continue to be able to carry forward the unrelieved amount.

However, there are circumstances where relief will cease to be available, or the form of relief available will change.

Amount available to carry forward

The unrelieved amount of any loss previously carried forward under S45A is the amount of that loss, less

The unrelieved amount of any loss previously carried forward under S45B is the amount of that loss, less any amounts already relieved under that section.

Trade ceases

Trade losses cannot be carried forward under S45A or S45B to any periods in which the company does not continue to carry on the trade (S45C (1)(c), S45D (1)(c), S45E (1)(c)).

This does not prevent companies from carrying forward losses to the period of cessation itself. However, it does mean that losses of the trade cannot be carried forward to any subsequent periods.

Provided the trade has not ceased, relief is available for unrelieved amounts as follows.

Relief against total profits

If a company has unrelieved amounts carried forward under S45A, it will generally continue to be allowed to carry those losses forward under S45A, for relief against total profits. This is subject to certain conditions (S45C).

The conditions are that:

  • in the period of relief, the trade is commercial or is carried on for statutory functions (CTA10/S44)and
  • in the preceding period, the trade did not become small or negligible.

Where the conditions are met, the company can make a claim for relief under S45A (5).

Note that the two conditions refer to two different periods. The first, relating to S44, looks at the trade as it is carried on in the period of relief. The second, relating to whether the trade is small or negligible, looks at the preceding period, from which the loss will be carried forward.

Relief no longer available against total profits

A company may not meet the conditions to continue to carry forward unrelieved amounts under S45A against total profits. Where this is the case, the losses are instead carried forward for relief against profits of the same trade, under S45B and S45D.

Once this change has been made, the company will not be able to carry the affected losses forward for relief under S45A in any subsequent accounting periods. Relief for those losses will only be available against profits of the same trade, under S45B.

For example:

  • In an accounting period ending 31 December 2020, a company sustains loss L in a trade, trade T. It is able to carry forward loss L under S45A to the next accounting period.
  • In the next accounting period, ending 31 December 2021, the company is potentially able to use loss L against its total profits. In fact, the company has losses across its business and so does not use loss L.
  • In addition, in that same accounting period ending 31 December 2021, trade T becomes small or negligible. For this reason, the company can only carry forward loss L to the next accounting period under S45B.
  • The next accounting period ends on 31 December 2022. The company can use loss L only against profits of the same trade, trade T, in this period, under S45B.
  • The company will only be able to carry unused parts of loss L forward to subsequent accounting periods under S45B.

Relief against profits of the same trade

Where a company has unrelieved amounts carried forward under S45B, they will continue to be carried forward for relief against profits of the same trade, under S45B and S45E.

Relief under S45B is automatic. The company will therefore need to make a claim if it wishes to prevent amounts carried forward under this section from being relieved to the full extent possible. This applies even in cases where the losses had previously been carried forward under S45A, if they are now carried forward under S45B.