CTM04835 - Corporation Tax: CT loss restriction: administrative requirements for the deductions allowance
CTA10/S269ZR to S269ZZB
Companies or groups with no carried-forward losses
Companies with carried-forward losses and not in a group
Companies with carried-forward losses that are members of a group
For accounting periods ending on or after 1 April 2017, companies of all sizes may have to fulfil some administrative requirements in relation to the restriction on relief for carried-forward losses at CTA10/PART7ZA. These requirements concern the deductions allowance, which plays a part in the restriction (CTA10/S269ZR, S269ZW).
The restriction at Part 7ZA only limits the amount of carried-forward losses a company can use where the company’s profits are above the amount of its deductions allowance. The deductions allowance is what prevents smaller companies and groups from having their use of losses affected by the restriction.
This means that the requirements set out below, concerning the deductions allowance itself, can affect any company that wishes to deduct carried-forward losses from its profits, so long as those losses are within the scope of the restriction. Most carried-forward losses are within the scope.
As a result, although most smaller companies and groups are unlikely to have their use of carried-forward losses affected by the restriction, they may still have to fulfil administrative requirements.
Companies or groups with no carried-forward losses {#}
A company will not have to fulfil any administrative requirements relating to the restriction if that company is not in a group and either
- does not have any losses carried-forward from earlier accounting periods, or
- does have losses carried-forward from earlier accounting periods, but is not deducting any of those losses from its profits of the current period.
The same applies for groups if, in the current accounting period, no members of the group are utilising any losses carried-forward from earlier accounting periods.
Companies with carried-forward losses and not in a group {#}
The following applies for a company that
- has losses carried-forward from an earlier accounting period,
- wishes to deduct some or all of those carried-forward losses from its profits of the current period, and
- is not in a group, as defined at CTA10/S269ZZB (CTM05160).
The company will need to specify the amount of its deductions allowance in its return (CTA10/S269ZZ). It can do this, for example, in its tax computations submitted as part of its return.
The amount of the company’s deductions allowance will generally be £5 million per 12 month accounting period beginning on or after 1 April 2017 (CTM05130, CTA10/S269ZW).
There is a further requirement if the company has carried forward losses of a type that can only be deducted from a particular type of profit. Where this is the case, the company will need to show how it has divided its deductions allowance between its trading and non-trading profits (CTA10/S269ZB (7), S269ZC (5)) (CTM05080).
In practice, this will apply if the company has carried-forward losses of any of the following types:
- Non-trading loan relationship deficits (NTLRDs) carried-forward for deduction from non-trading profits only (CTA09/S457 (3) or S463H (5)),
- Trading losses carried-forward for deduction from profits of the same trade only (CTA10/S45 (4)(b) or S45B), and
- Deductions from trading profits under CTA10/S303B (4) or S303D (5) for excess carried-forward non-decommissioning losses of a ring fence trade in the oil and gas industry, where certain conditions are met (CTA10/S269ZB (3)(b) and (4)).
The company must state the amount of its trading profits deductions allowance and the amount of its non-trading profits deductions allowance, along with the total amount of its deductions allowance, in its return. It can do this in its tax computations submitted as part of its return.
Groups
The following applies where:
- Two or more companies are members of a group, as defined at CTA10/S269ZZB (CTM05160), and
- One or more companies in the group has losses carried-forward from an earlier accounting period, and will be deducting some or all of those losses from its profits of the current period or surrendering the losses to another company in the group as group relief for carried-forward losses.
The group shares a single deductions allowance, called the group deductions allowance (CTA10/S269ZS (2) to (4)). The group can allocate the group deductions allowance amongst its members as it sees fit.
To do this, all members of the group need to nominate a nominated company (S269ZS (1), CTM05180). The nomination does not need to be submitted to HMRC but does need to be available if needed, for example in support of an enquiry.
The amount of the group deductions allowance is determined with reference to the nominated company’s accounting period (S269ZS (2) to (4), CTM05190). If the nomination had effect throughout the nominated company’s accounting period, then the group deductions allowance is generally £5 million. However, this is proportionally reduced if the nominated company’s accounting period is less than 12 months or if the accounting period began before and ended after 1 April 2017.
To allocate the group deductions allowance amongst members of the group, the nominated company must submit a group allowance allocation statement for each of its accounting periods in which it is the nominated company (CTA10/S269ZT (1), CTM05200). It can submit the statement in PDF format as an attachment to its tax return. There is a template for the statement at CTM04836.
The nominated company lists one or more group companies on the group allowance allocations statement (the listed companies) (CTA10/S269ZV (3)(e)) and allocates the group deductions allowance between these companies.
There are no set proportions in which the deductions allowance has to be allocated amongst the listed companies but there is an overall maximum amount that can be allocated to a particular company for its accounting period (S269ZV(5), CTM05210).
The group allowance allocation statement must be signed by the appropriate person in relation to the nominated company (S269ZV (2)). An appropriate person is a proper officer of the company or another person who has the authority of the company to act on its behalf (S269ZS (9)). Proper officer takes the meaning given at TMA70/S108 (3) and (4).
Requirements for individual companies in the group are set out below.
Companies with carried-forward losses that are members of a group {#}
This applies to any individual company that is a member of a group.
The company’s deductions allowance for an accounting period is whatever is allocated to it on the group allowance allocation statement or statements that relate to that period (CTA10/S269ZR, CTM05140)
The exception to this is if the company is only in a group for part of its accounting period, in which case it is entitled to an appropriate amount of non-group deductions allowance (S269ZR, CTM05150).
The company must state the total amount of its deductions allowance for the accounting period on its tax return for that period (CTA10/S269ZZ).
If the company has carried forward losses of a type that can only be deducted from a particular type of profit, it will need to show how it has divided its deductions allowance between its trading and non-trading profits (CTA10/S269ZB (7), S269SC (5)). This is the same as for companies that are not in a group.