CTM04940 - Corporation tax: CT loss reform: commencement: example 4: company makes overall profit in the AP straddling 1 April 2017: carried-forward losses relieved in the period
Before reading this example, refresh the note concerning examples at CTM04900, which sets out the key assumptions made.
If there are carried-forward losses that can be used in the straddling accounting period, it is necessary to apportion profits, losses and deductions into the two pre- and post-1 April 2017 periods in order to calculate the amount of losses that may be allowed in the straddling period overall, and the amount of any pre- and post-1 April 2017 losses available to carry forward from that accounting period.
Example
In its accounting period from 1 January 2017 to 31 December 2017, Company D has:
- Non-trade profits of £2,500,000,
- UK property business losses of £1,000,000,
- Trading losses of £1,000,000, and
- UK property business losses carried-forward from previous periods of £600,000.
The loss restriction limits the amount of relief available for the property business loss carried forward in the post-1 April period. In order to calculate this correctly, the company must apportion the non-trade profits, UK property business losses and trading losses arising in the year.
Step 1
Apportion in-year profits, losses and other amounts to two notional periods, the first beginning 1 January 2017 and ending 31 March 2017, the second beginning 1 April 2017 and ending 31 December 2017.
| £ | |
|---|---|
| 1/1/17 to 31/3/17 | |
| Non-trade profits | 625,000 |
| Property business loss arising | (250,000) |
| Trade loss arising | (250,000) |
| 1/4/17 to 31/12/17 | |
| Non-trade profits | 1,875,000 |
| Property business loss arising | (750,000) |
| Trade loss arising | (750,000) |
There is no need to apportion amounts carried -forward from previous periods. These are carried-forward against profits of the first notional period, with any balance remaining carried-forward against profits of the second notional period.
Step 2
Calculate the net result for the first notional period.
| £ | |
|---|---|
| 1/1/17 to 31/3/17 | |
| Non-trade profits | 625,000 |
| Less: | |
| Property buisness loss arising | (250,000) |
| Trade loss arising | (250,000) |
| Property business loss brought forward and used in this notional period | (125,000) |
| Net profits | nil |
| Remaining property business loss brought forward, carried-forward to next notional period | (475,000) |
The property business loss arising, trade loss arising and property business loss brought forward are all amounts which can be relieved against the company’s total profits of the period, under CTA10/S4 (2) Step 2. There is no set order in which these particular reliefs should be given in relation to one another.
In this instance, the company has chosen to relieve its trade and property business losses arising before its property business loss brought forward.
Step 3
Calculate the relevant maximum for the second notional period, in accordance with the loss restriction.
| £ | |
|---|---|
| 1/4/17 to 31/12/17 | |
| Modified total profits (CTA10/S269ZF (3) step 1) | 1,875,000 |
| Less amounts deducted from total profits (excluding brought forward property losses) (S269ZF (3) steps 2 and 4): | |
| Property business loss arising | (750,000) |
| Trade loss arising | (750,000) |
| Qualifying non-trading profits (S269ZF (3) step 5) | 375,000 |
| Relevant non-trading profits and relevant profits (CTA10/S269ZF (2) and S269ZD (5))\n(assume no deductions allowance) | 375,000 |
| Relevant maximum (S269ZD (4)) | 187,500 |
The relevant maximum gives the total amount of profits that can be relieved using losses brought forward, with the exception of losses such as allowable capital losses that are outside the scope of the loss restriction until 1 April 2020.
There is no need to calculate trade and non-trade relevant maxima (CTA10/S269ZB (5), S269ZC (3)) since all of the company’s losses brought forward are available for relief against total profits.
Step 4
Calculate the net result for the second notional period.
| £ | |
|---|---|
| 1/4/17 to 31/12/17 | |
| Non-trade profits | 1,875,000 |
| Less: | |
| Property business loss arising | (750,000) |
| Trade loss arising | (750,000) |
| Property business loss brought forward and used in this notional period (subject to the relevant maximum, calculated above) | (187,500) |
| Net profits | 187,500 |
| Remaining property business loss brought forward, carried-forward to the accounting period beginning 1 January 2018 | (287,500) |
Step 5
Compute the profits chargeable to Corporation Tax for the straddling accounting period.
| £ | |
|---|---|
| 1/1/17 to 31/12/17 | |
| Non-trade profits | 2,500,000 |
| Property business loss arising | (1,000,000) |
| Trade loss arising | (1,000,000) |
| Property business loss brought forward | (312,500) |
| Profits chargeable to Corporation Tax | 187,500 |
The remaining £287,500 property business loss brought forward is carried-forward to the next accounting period as a pre-1 April 2017 property business loss.