CTM05070 - Corporation tax: restriction on relief for carried-forward losses: qualifying profits

CTA10/S269ZF(3) Steps 4 and 5

The various type of qualifying profits are calculated as explained below.

Periods before 1 April 2020

A company’s total qualifying profits (CTA10/S269ZFA(2)) are calculated as follows:

  1. calculate modified total profits (CTA10/S269ZF(3) Step 1) (CTM05040), then
  2. deduct the amount of in-year reliefs (CTA10/S269ZF(3) Step 2) (CTM05060).

Qualifying trading and non-trading profits are the result of the following steps:

  1. Calculate modified total profits (CTA10/S269ZF(3) Step 1) (CTM05040),
  2. Separate the modified total profits into trading and non-trading profits, (CTA10/S269ZF(3) Step 3 (CTM05050),
  3. Allocate and deduct in-year reliefs from trading and non-trading profits (CTA10/S269ZF(3) Steps 2 and 4) (CTM05060).

For example, a company has modified total profits of £12 million.

These comprise £10 million trading profits and £2 million non-trading profits. There are no chargeable gains.

The company has £4 million in-year relief.

The company allocates £3 million in year relief to trading profits and the remaining £1 million to non-trading profits.

As a result, the company has:

  • Qualifying total profits of £12 million less in-year reliefs £4 milliom = £8 million
  • Qualifying trading profits of £10 million less in-year reliefs £3 million = £7 million, and
  • Qualifying non-trading profits of £2 million less in-year reliefs £1 million = £1 million.

The company can allocate its in-year reliefs between trading and non-trading profits as it chooses, so long as it does not reduce either to less than nil.

Periods from 1 April 2020

A company’s total qualifying profits (CTA10/S269ZFA(2)) are calculated as follows:

  1. calculate modified total profits (CTA10/S269ZF(3) Step 1) (CTM05040), then
  2. deduct the amount of in-year reliefs (CTA10/S269ZF(3) Step 2) (CTM05060).

Qualifying trading profits, qualifying non-trading income profits and qualifying chargeable gains are the result of the following steps:

  1. Calculate modified total profits (CTA10/S269ZF(3) Step 1) (CTM05040),
  2. Separate the modified total profits into trading, non-trading income profits and chargeable gains, (CTA10/S269ZF(3) Step 3 (CTM05050),
  3. Allocate and deduct in-year reliefs from trading, non-trading income profits and chargeable gains (CTA10/S269ZF(3) Steps 2 and 4) (CTM05060).

Companies with no streamed losses carried forward

If all of the company’s losses carried forward are relevant deductions, as defined at CTA10/S269ZD(3) (CTM05020), then it is not necessary to calculate various types of qualifying profits separately. Instead, it is only necessary to compute the total amount of qualifying profits. This will be the amount of the modified total profits minus the total in-year reliefs. (CTA10/S269ZFA(2))

However, this only applies if the company’s restricted carried-forward losses do not include any streamed losses (CTM05020).

Next step

Once the company has calculated its qualifying profits, the next step is to calculate:

  • for periods to 1 April 2020, the relevant trading, non-trading and total profits
  • for periods from 1 April 2020, the relevant trading profits, non-trading income profits, chargeable gains and total profits (CTM05080).