CTM04130 - Corporation tax: trading losses: general: relief for losses carried forward: losses incurred from 1 April 2017: terminal losses
CTA10/S45F to 45H
When a trade ceases, the company may be able to claim terminal loss relief under S45F for carried forward losses of that trade.
This only applies for trade losses carried forward to the period of cessation under CTA10/S45, CTA10/S45A or CTA10/S45B.
Where certain conditions are met, the relief allows these losses to be set against profits of the three years ending with the end of the period of cessation without being subject to the loss restriction.
The extent to which losses can be relieved under S45F depends on whether they were previously carried forward under S45, S45A or S45B.
Losses carried forward to the period of cessation under S45A, against total profits, can be relieved against total profits under S45F.
Losses carried forward to the period of cessation under S45 or S45B, against profits of the same trade, can likewise only be relieved against profits of the same trade under S45F.
There is no equivalent relief for non-trading losses.
Restriction on deductions
A company may have profits in the final three years of the trade which it has been unable to fully relieve due to the restriction on deductions for carried forward losses or the restriction on deductions for banking companies.
However, these restrictions do not apply for losses relieved under S45F. Neither includes relief under S45F amongst the deductions it restricts.
When a trade ceases, a company may therefore be able to get relief for carried forward losses using S45F in periods where this would otherwise have been prevented.
Conditions
S45F (4)
Relief is only available for periods beginning on or after 1 April 2017.
Relief is not available against profits of;
- the period in which the loss to be used was originally sustained, or
- any preceding periods.
That is, relief under S45F is only available in periods subsequent to the original, loss-making period. S45F extends a company’s use of losses carried forward, but does not allow any additional in-year relief or carried-back relief for a company’s losses.
Order of relief
S45F (5)
Losses relieved under S45F should always be deducted from profits of a later period first, to the full extent possible, before they are deducted from profits of any earlier periods.
Profits of the period of cessation itself should therefore be given priority and relieved to the full amount possible before any profits of the preceding period are relieved.
Three year period
S45F (3)
Relief is available for the three years ending with the end of the period of cessation (S45F (3)). For example, if a trade ceases in a period ending on 31 December 2020, relief will be available under S45F against the profits of the three years from 1 January 2018 to 31 December 2020.
Note that the three year period used for relief under S45F is not the same as the three year period for relief under CTA10/S39. Relief under S39 is for trade losses incurred in the final twelve months of a trade and is discussed at CTM04520.
Apportionment
S45G
In some circumstances, an accounting period will fall partly within and partly outside the three years whose profits can be relieved under S45F. The company will be able to get relief under S45F for a proportion only of the profits of the affected period.
To calculate the amount of profits it can relieve, the company should follow these steps:
1. Calculate the proportion of the accounting period falling within the three years.
2. Find the trade profits and total profits of the accounting period.
3. Apply the proportion calculated at step one to the trade profits. This gives the maximum amount of trade profits of the affected period that the company can potentially relieve using losses previously carried forward against profits of the same trade, under S45 or S45B.
4. Apply the proportion calculated at step one to the total profits. This gives the maximum amount of total profits of the affected period that the company can potentially relieve using losses previously carried forward against total profits, under s45A.
For example (with figures rounded to the nearest whole number):
1. 272 days in a 365 day accounting period fall within the three years. The proportion is therefore 272/365.
2. The trade profits of the period are £100,000. The total profits are £120,000.
3. 272/365 x £100,000 = £74,521 of trade profits can potentially be relieved by losses previously carried forward under S45 or S45B, now utilised under S45F.
4. 272/365 x £120,000 = £89,425 of total profits can potentially be relieved by losses previously carried forward under S45A, now utilised under S45F.
In many cases, the above calculation will not be necessary. A company will have to have relieved profits of all later periods, up to and including the period of cessation, to the full extent possible under S45F, before it can relieve profits of a period falling partly outside the relevant three years. This is because relief under S45F is always given against profits of a later period first.
Transfers of trade
S45H
S45H is an anti-avoidance rule. Where both of the following conditions are met, relief is unavailable under S45F
- when the company ceased to carry on the trade, any of the activities of the trade began to be carried on by a person or persons not within the charge to Corporation Tax, and
- the company’s ceasing to carry on the trade was part of a scheme or arrangement the main purpose or one of the main purposes of whichthe scheme was to secure relief under S45F by reason of the cessation.