CTM04920 - Corporation tax: CT loss reform: commencement: example 2: alternative treatment of NTLRDs arising in the AP straddling 1 April 2017
Before reading this example, refresh the note concerning examples at CTM04900, which sets out the key assumptions made.
Introduction
In Example 1 (CTM04910), if instead of trading losses the company had NTLR deficits, it has the option to apportion to a greater extent (CTM04880). This is illustrated below.
Example
In its accounting period from 1 January 2017 to 31 December 2017, Company B has:
- Property business profits of £800,000, and
- NTLRDs of £1,000,000.
Here, the company has the option of apportioning only the carried-forward NTLRDs as in Example 1. However, as relief for NTLRDs against profits of the period in which they arise is included in F(2)A17/SCH4, the company may instead apportion all the NTLRDs and profits of the period to the pre- and post-1 April 2017 periods under F(2)A17/PARA190 (2)(a):
| £ | |
|---|---|
| 1/1/17 to 31/3/17 | |
| Property business profits | 200,000 |
| NTLRDs arising, set against profits of the notional period | (200,000) |
| Unused pre-1 April 2017 NTLRDs | (50,000) |
| 1/4/17 to 31/12/17 | |
| Non-trading profits | 600,000 |
| NTLRDs arising, set against profits of the notional period | (600,000) |
| Unused post-1 April 2017 NTLRDs | (150,000) |
PARA190 (2)(a) treats the periods to 31 March 2017 and from 1 April 2017 as separate accounting periods. The unused NTLRDs for the period to 31 March 2017 may be:
- Carried-forward automatically under CTA09/S457 (3), if the company makes no claim for the deficit to be used in another way, and set against non-trade profits of later accounting periods, beginning with the notional period from 1 April 2017 to 31 December 2017 (subject to the restriction in CTA10/S269ZC),
- Carried-back under CTA09/S459 and set against profits chargeable under CTA09/PART5 arising in the 12 months ending 31 December 2016,
- Surrendered for relief under CTA10/S99 (1)(c), or
- Some combination of the above (e.g. £20,000 surrendered as group relief and the remaining £30,000 carried-back).
The unused NTLRDs from the period beginning 1 April 2017 may be:
- Carried-forward automatically under CTA09/S463G (6), if the company makes no claim for the deficit to be used in another way, and set against total profits of a later accounting period under s463G (7) (subject to the restriction in CTA10/S269ZD),
- Carried-back under CTA09/S463B (1)(b) and set against profits chargeable under CTA09/PART 5 arising in the 12 months ending 31 March 2017,
- Surrendered as group relief under CTA10/S99 (2), or
- Some combination of the above.
Where amounts are surrendered as group relief from one notional period only, the surrender period (CTA10/S99 (7)) is the same as the notional period. This is because PARA190 (2)(a) treats the notional periods as separate accounting periods.
However, this does not apply to the surrender of other losses and similar amounts incurred in the straddling period, and will only apply to NTLRDs if the company chooses to take the above approach, apportioning beyond the extent required for the loss restriction and determining whether amounts carried forward are pre- or post-1 April 2017 amounts.
In Example 1, if the company chose to surrender £100,000 trade losses, the surrender period would be 1 January 2017 to 31 December 2017. The same would apply if the company had treated NTLRDs in the same manner as the trading losses in Example 1.
If the company treats its NTLRDs as set out in Example 2, and, for example, chooses to surrender £20,000 from the first notional period beginning 1 January 2017 and ending 31 March 2017, the surrender period will be 1 January 2017 to 31 March 2017.
Apportionment of NTLRDs to this extent is entirely optional and is not required by HMRC.