CTM05090 - Corporation tax: restriction on relief for carried-forward losses: relevant maxima

CTA10/S269ZB(5), S269ZBA(3), S269ZC(3) and S269ZD(4)

The relevant maxima give the maximum amount of restricted carried-forward losses that a company can deduct from its profits.

If a company has streamed losses (CTM05020), it will need to calculate the relevant maximum for the type of profits against which those losses can be relieved together with the relevant maximum for total profits. For example, if the company has streamed trading losses, it will need to calculate the relevant maxima for trading profits and total profits. If however the company has no streamed losses and all carried forward losses are relevant deductions (CTM05020) it need only calculate the relevant maximum for total profits.

The relevant maxima that may need to be computed will depend on the period in which relief is to be allowed:

For periods before 1 April 2020:

  • trading profits (CTA10/S269ZB(5))
  • non-trading profits (CTA10/S269ZC(3))
  • total profits (CTA10/S269D(4))

For periods from 1 April 2020:

  • trading profits (CTA10/S269ZB(5))
  • non-trading income profits (CTA10/S269ZC(3))
  • total profits (CTA10/S269D(4))
  • chargeable gains (CTA10/SZBA(3))

The definition of the non-trading profits relevant maximum was changed by FA20/Schedule4/Para3 as explained below.

Relevant maximum for trading profits

CTA10/S269ZB(5)

This is the sum of:

  • 50% of the relevant trading profits, and
  • The trading profits deductions allowance.

Both of these are discussed at CTM05080.

The relevant maximum for trading profits sets the maximum amount of relief a company can obtain for restricted streamed carried-forward losses of a trade.

These are:

  • Trading losses carried forward for deduction from profits of the same trade only (CTA10/S45(4)(b) or S45B), and
  • Excess non-decommissioning losses of a ring fence trade in the oil and gas industry carried forward for deduction from profits of the same trade under CTA10/S303B(4) or S303D(5), if certain conditions are met (CTA10/S269ZB(3)(b) and (4)).

For example, a company has

  • Pre-1 April 2017 trading losses carried forward under CTA10/S45 of £10 million,
  • Qualifying trading profits of £8 million, and
  • A deductions allowance of £5 million.

The company is not a life insurance company.

The company allocates the whole of its deductions allowance to trading profits. Its trading profits deductions allowance is therefore £5 million, and its relevant trading profits are £8 million minus £5 million = £3 million.

The relevant maximum for trading profits is therefore:

  • 50% of the relevant trading profits: 50% of £3 million = £1.5 million,

plus

  • The trading profits deductions allowance of £5 million.

This gives £1.5 million + £5 million = a relevant maximum for trading profits of £6.5 million.

This is the maximum amount of relief the company can obtain for its trading losses carried forward for deduction from profits of the same trade.

Assuming that the company deducts the full £6.5 million allowable, it will be left with £3.5 million unused trading losses to carry forward to subsequent accounting periods, so long as the trade continues.

Unused capacity

A company may have a relevant maximum for trading profits that is greater than the total amount of its restricted streamed trading losses carried forward. For example, a company with a relevant maximum for trading profits of £20 million may have only £14 million streamed trading losses carried forward. Assuming the company used those losses to the full extent possible, it would be left with £6 million remaining capacity.

In addition, for periods from 1 April 2017, companies can choose what amount they use of any trading losses carried forward for relief against profits of the same trade under CTA10/S45 or S45B. They can do this by making a claim under s45(4A) or s45B(5), as appropriate, for none of the loss to be used, or for part only of the loss to be used (CTM04860). For example, a company might have a relevant maximum for trading profits of £18 million and streamed trading losses carried forward of £30 million. The company could therefore deduct up to £18 million of these losses from its trading profits. However, it chooses instead to deduct only £11 million. This leaves the company with £7 million remaining capacity.

If the company does not use restricted streamed trading losses up to the full amount of the relevant maximum for trading profits, any capacity remaining is included in the amount of the relevant maximum for total profits.

Trading losses carried forward for relief against total profits

The relevant maximum for trading profits does not apply for trading losses carried forward for relief against total profits, for example under CTA10/S45A. These losses are relevant deductions (CTM05020). The restriction on relief for all relevant deductions is set by the relevant maximum for total profits.

Relevant maximum for non-trading profits - periods before 1 April 2020

CTA10/S269ZC(3)

This is the sum of:

  • 50% of the relevant non-trading profits, and
  • The non-trading profits deductions allowance.

Both of these are discussed at CTM05080.

The relevant maximum for non-trading profits sets the maximum amount of relief a company can obtain for restricted streamed non-trading loan relationship deficits (NTLRDs) carried forward. That is, NTLRDs carried forward for deduction from non-trading profits only under CTA09/S457(3) or S463H(5)).

For example, a company has:

  • Pre-1 April 2017 NTLRDs carried forward under CTA09/S457 of £12 million,
  • Qualifying non-trading profits of £13 million, and
  • A deductions allowance of £5 million.

The company is not a life insurance company.

The company allocates the whole of its deductions allowance to non-trading profits. Its non-trading profits deductions allowance is therefore £5 million, and its relevant non-trading profits are £13 million minus £5 million = £8 million.

The relevant maximum for non-trading profits is therefore:

  • 50% of the relevant non-trading profits: 50% of £8 million = £4 million,

plus

  • The non-trading profits deductions allowance of £5 million.

This gives £4 million + £5 million = a relevant maximum for non-trading profits of £9 million.

This is the maximum amount of relief the company can obtain for its streamed NTLRDs, which are carried forward for deduction from non-trading profits only.

Assuming that the company deducts the full £9 million allowable, it will be left with £3 million unused NTLRDs to carry forward to subsequent accounting periods, so long as any investment business carried on by the company does not cease.

Unused capacity

As with trading profits, a company may have a relevant maximum for non-trading profits that is greater than the total amount of its restricted streamed NTLRDs carried forward. For example, a company with a relevant maximum for non-trading profits of £14 million may have only £3 million streamed NTLRDs carried forward. Assuming the company used those NTLRDs to the full extent possible, it would be left with £11 million remaining capacity.

In addition, companies can choose what amount they use of any NTLRDs carried forward for relief against non-trading profits by making a claim under CTA09/S458 or under CTA08/S463H(7), as appropriate (CFM32040). For example, a company might have a relevant maximum for non-trading profits of £31 million and streamed NTLRDs carried forward of £40 million. The company could therefore deduct up to £31 million of these losses from its trading profits. However, it chooses instead to deduct only £20 million. This leaves the company with £11 million remaining capacity.

If the company does not use restricted streamed trading losses up to the full amount of the relevant maximum for non-trading profits, any capacity remaining is included in the amount of the relevant maximum for total profits.

NTLRDs carried forward for relief against total profits

The relevant maximum for non-trading profits does not apply for NTLRDs carried forward for relief against total profits under CTA09/S463G. NTLRDs of this type are relevant deductions (CTM05020). The restriction on relief for all relevant deductions is set by the relevant maximum for total profits.

Relevant maximum for non-trading profits – periods from 1 April 2020

CTA10/S269ZC(3)

This is the sum of:

  • 50% of the total relevant non-trading profits, and
  • the total non-trading profits deductions allowance.

The relevant maximum for non-trading profits sets the maximum amount of relief a company can obtain for the total of:

  • streamed non-trading loan relationship deficits (NTLRDs) carried forward, and
  • capital losses carried forward.

Relief allowed for any capital losses carried forward is restricted to the amount of the relevant maximum for chargeable gains as explained below.

If relief is given for carried forward capital losses, the maximum amount of relief that may be allowed for NTLRDs carried forward under CTA09/S457(3) or S463H(5) is the difference between:

  • the relevant maximum for non-trading profits, and
  • the amount of any deductions for capital losses carried forward under TCGA92/S2A(1)(b) (CTA10/S269ZC(2))

Relevant maximum for chargeable gains

CTA10/S269ZBA(3)

This is the sum of:

  • 50% of the relevant chargeable gains, and
  • The chargeable gains deductions allowance.

The relevant maximum for chargeable gains sets the maximum amount of relief a company can receive for capital losses carried forward. The restriction applies to relief allowed from 1 April 2020 and applies to capital losses that arose before or after this date.

For example, a company with an AP beginning on or after 1 April 2020 has:

  • Carried-forward capital losses of £20m
  • Chargeable gains of £11m
  • A deductions allowance of £5m

The company allocates the whole of the deductions allowance to its chargeable gains. Its chargeable gains deductions allowance is therefore £5 million and its relevant chargeable gains are £11 million minus £5m = £6 million.

The relevant maximum for chargeable gains is therefore:

  • 50% of the relevant chargeable gains: 50% of £6million = £3 million

plus

  • The chargeable gains deductions allowance of £5 million

This gives £3 million + £5 million = a relevant maximum for chargeable gains of £8million.

This is the maximum amount of relief the company can obtain for its capital losses, which are carried forward for deduction from chargeable gains only.

Assuming that the company deducts the full £8 million allowable, it will be left with £12 million unused capital losses to carry forward to subsequent accounting periods.

Unused capacity

A company may have a relevant maximum for chargeable gains that is greater than its restricted carried-forward capital losses. For example, a company with a relevant maximum for chargeable gains of £10 million may only have £2 million carried-forward capital losses. Assuming that the company used those losses to the full extent possible, it would be left with remaining capacity of £8 million.

If the company does not use restricted capital losses up to the full amount of the relevant maximum for chargeable gains, any capacity remaining is included in the amount of the relevant maxima for non-trading profits and total profits.

Relevant maximum for total profits

CTA10/S269ZD(4)

This is the sum of:

  • 50% of the relevant profits, and
  • The total deductions allowance.

Both of these are discussed at CTM05080.

The relevant maximum for total profits sets an overriding upper limit for the amount of restricted carried-forward losses of any type that the company can deduct from its profits. This relevant maximum needs to be calculated where the company has any restricted carried-forward losses that are relevant deductions (CTM05020). If all of the company’s restricted carried-forward losses are streamed losses, it only needs to calculate the relevant maxima for trading profits, non-trading profits or chargeable gains.

Because the relevant maximum for total profits sets an overriding upper limit for all types of restricted carried-forward loss, it does not necessarily give the maximum amount of relief the company will be able to get for its relevant deductions. This is because if the company has deducted streamed carried-forward losses in accordance with the relevant maxima for trading profits, non-trading profits and chargeable gains, it will already have used up some of its total capacity under the relevant maximum for total profits.

The maximum amount of relief the company can obtain for its relevant deductions is:

  • The relevant maximum for total profits,

Less the sum of:

  • Any deductions made for restricted streamed carried-forward trading losses under CTA10/S45(4)(b), S45B, CTA10/S303B(4) or CTA10/S303D(5),
  • Any deductions made for restricted streamed NTLRDs under CTA09/S457(3) or S463H(5),
  • Any deductions made for restricted capital losses under TCGA92/S2A(1)(b) for a period after 1 April 2020, and
  • Any deductions made for carried-forward BLAGAB trade losses from BLAGAB trade profits under FA12/S124(5), S124A(5) or S124C(6).

This is the reason why, as set out above, a company that does not deduct streamed carried-forward losses up to the full amount of its relevant maxima for trading profits, non-trading profits or chargeable gains will be left with spare capacity.

Example 1

In its accounting period ending 31 December 2019, a company has:

  • Post-1 April 2017 NTLRDs carried forward for relief against total profits under CTA09/S463G(6) of £35 million,
  • Qualifying profits of £29 million, and
  • A deductions allowance of £5 million.

The company is not a life insurance company.

Since the company’s only carried-forward losses are relevant deductions, available for relief against total profits, it does not need to calculate relevant maxima for trading and non-trading profits.

The company deducts the deductions allowance from the qualifying profits, giving relevant total profits of £24 million.

The company’s relevant maximum for total profits is:

  • 50% of the relevant profits of £24 million = £12 million, plus
  • The total deductions allowance of £5 million.

This gives a relevant maximum of £12 million plus £5 million = £17 million.

Assuming that the company deducts the full £17 million allowable, it will be left with £18 million unused NTLRDs to carry forward to subsequent accounting periods, so long as any investment business carried on by the company does not cease. Alternatively, since they are post-1 April 2017 NTLRDs carried forward for relief against total profits, the company may be able to surrender them as group relief for carried-forward losses under CTA10/PART5A.

Example 2

In its accounting period ending 31 December 2019, a company has:

  • Pre-1 April 2017 trading losses of £40 million, carried forward for relief against profits of the same trade only under CTA10/S45,
  • Post-1 April 2017 NTLRDs carried forward for relief against total profits under CTA09/S463G(6) of £15 million,
  • Trading profits of £11 million,
  • Non-trading profits of £18 million,
  • In-year reliefs of £6 million, and
  • A deductions allowance of £5 million.

The company is not a life insurance company.

1: Allocation of in-year reliefs

The company allocates in-year reliefs as follows:

  • Trading profits £2 million
  • Non-trading profits £4 million

2: Allocation of deductions allowance

The company allocates:

  • £1 million of its deductions allowance as the trading profits deductions allowance, and
  • £4 million of its deductions allowance as the non-trading profits deductions allowance.

3: Qualifying profits

  • Trading profits £11 million less in year reliefs £2 million = qualifying trading profits £9 million
  • Non-trading profits £18 million less in year reliefs £4 million= qualifying non-trading profits £14 million
  • Total profits £29 million less in year reliefs £6 million= qualifying profits £23 million

4: Relevant profits

Relevant profits are therefore as follows:

  • Qualifying trading profits of £9 million less £1 million trading profits deductions allowance = relevant trading profits of £8 million,
  • Qualifying non-trading profits of £14 million less £4 million non-trading profits deductions allowance = relevant non-trading profits of £10 million,
  • Qualifying profits £23 million less £5 million deductions allowance = relevant profits £18 million

Since the company’s restricted losses comprise streamed carried-forward trading losses (its trading losses carried forward under CTA10/S45) and relevant deductions (its NTLRDs carried forward under CTA09/S463G(6)), it needs to calculate the relevant maxima for trading profits and for total profits. The company does not have any streamed carried-forward NTLRDs so does not need to calculate the relevant maximum for non-trading profits.

5: Relevant maximum for trading profits

The company’s relevant maximum for trading profits is:

  • 50% of the relevant trading profits: 50% of £8 million = £4 million,

plus

  • The trading profits deductions allowance of £1 million.

This gives £4 million + £1 million = a relevant maximum for trading profits of £5 million.

The company deducts £5 million of its streamed carried-forward trading losses from its trading profits. This is the full amount possible. The remaining £35 million trading losses can be carried forward for use in future accounting periods, so long as the trade continues.

6: Relevant maximum for total profits

The company’s relevant maximum for total profits is:

  • 50% of the relevant profits: 50% of £18 million = £9 million,

plus

  • The total deductions allowance of £5 million.

This gives a relevant maximum for total profits of £14 million.

However, the company has already used £5 million restricted carried-forward losses at point 3, above. Its remaining capacity in accordance with the relevant maximum for total profits is therefore £14 million minus £5 million = £9 million.

The company deducts £9 million of its NTLRDs carried forward under CTA09/S463G(6) from its total profits. This leaves £6 million NTLRDs remaining, which the company can carry forward for relief in future periods so long as any investment business carried on by the company does not cease.

Example 3

In its accounting period ending 31 December 2022, a company has:

  • Pre-1 April 2017 trading losses of £30 million carried-forward for relief against profits of the same trade only under CTA10/S45
  • Post 1 April 2017 NTLRD’s carried-forward for relief against total profits under CTA09/S463G(6) of £5 million
  • Capital losses carried-forward of £40 million
  • Management expenses of £9 million carried-forward under CTA09/1223
  • Trading profits of £9 million
  • Non-trading income profits of £15 million
  • Chargeable gains of £16 million
  • A deductions allowance of £5 million
  • In-year reliefs £8 million

The company is not a life assurance company.

1: Allocation of in-year reliefs

The company allocates in-year reliefs as follows:

  • Trading profits £2 million
  • Non-trading income profits £3 million
  • Chargeable gains £3 million

2: Qualifying profits

The qualifying profits are as follows:

  • Trading profits £9 million less in-year reliefs £2 million = qualifying trading profits £7 million
  • Non-trading income profits £15 million less in-year reliefs £3 million = qualifying non-trading income profits £12 million
  • Chargeable gains £16 million less in-year reliefs £3 million = qualifying chargeable gains £13 million
  • Trading profits £9 million plus non-trading income profits £15 million plus chargeable gains £16 million less in-year reliefs £8 million = total qualifying profits £32 million

(CTA10/S269ZF(3))

3: Allocation of deductions allowance

The company allocates:

  • £2 million of its deductions allowance as the non-trading income profits deductions allowance, and
  • £3 million of its deductions allowance as the chargeable gains deductions allowance.

4: Relevant profits

Relevant profits are as follows:

  • Qualifying trading profits of £7 million less NIL deductions allowance = relevant trading profits of £7 million (CTA10/S269ZF(1))
  • Qualifying non-trading income profits of £12 million less £2 million non-trading income profits deductions allowance = relevant non-trading income profits of £10 million (CTA10/S269ZF(2))
  • Qualifying chargeable gains of £13 million less £3 million chargeable gains deductions allowance = relevant chargeable gains of £10 million (CTA10/S269ZF(2A))
  • Qualifying profits £32 million less £5 million deductions allowance = relevant profits £27 million (CTA10/S269ZFA(1))

Since the company’s restricted losses comprise streamed carried forward trading losses, relevant deductions (its NTLRDs carried-forward under CTA09/S463G(6), management expenses carried forward under CTA09/S1223 and capital losses carried-forward under TCGA92/S2A(1)(b)), it needs to calculate the relevant maxima for trading and non-trading profits, chargeable gains and total profits.

5: Relevant maximum for trading profits

The company’s relevant maximum for trading profits is:

  • 50% of the relevant trading profits: 50% of £7 million = £3.5 million,

Plus,

  • The trading profits deductions allowance of NIL.

This gives a relevant maximum for trading profits of £3.5 million.(CTA10/S269ZB(5))

The company deducts £3.5 million of its streamed carried-forward trading losses from its trading profits. This is the full amount possible. The remaining £26.5 million trading losses can be carried-forward for use in future accounting periods, so long as the trade continues.

6: Relevant maximum for non-trading profits

The relevant maximum for non-trading profits is 50% of total relevant non-trading profits plus the total non-trading profits deductions allowance (CTA10/S269ZC(3)). Total non-trading profits deductions allowance is equal to:

  • non-trading income profits deductions allowance £2 million (CTA10/S269ZC(5)), plus
  • chargeable gains deductions allowance £3 million (CTA10/S269ZBA(5)),

which is £5 million (CTA10/S269ZC(3A))

Total relevant non-trading profits are equal to:

  • qualifying non-trading income profits £12 million, plus
  • qualifying chargeable gains £13 million, less
  • total non-trading profits deductions allowance £5 million

which is £20 million (CTA10/S269ZF(2B))

The relevant maximum for non-trading profits is therefore (£20 million x 50%) plus £5 million = £15 million

7: Relevant maximum for chargeable gains

The company’s relevant maximum for chargeable gains is:

  • 50% of the relevant chargeable gains of £10 million = £5 million

Plus

  • the chargeable gains deductions allowance £3m.

This gives a relevant maximum for chargeable gains of £8 million. (CTA10/S269ZBA(3))

The company deducts £8 million (the full amount possible) of the carried-forward capital losses from its chargeable gains. The remaining £32 million is carried-forward for relief against future chargeable gains

8: Relevant maximum for total profits

The company’s relevant maximum for total profits is:

  • 50% of the relevant profits of £27 million = £13.5 million

Plus

  • The total deductions allowance of £5 million.

This gives a relevant maximum for total profits of £18.5 million (CTA10/S269ZD(4)).

The company has already used £3.5m of trading losses and £8m capital losses (£11.5 million)leaving the company with capacity of £7 million for relief. As the company has remaining carried-forward amounts that are relevant deductions (management expenses carried-forward under CTA09/S1223 and NTLRDs carried forward under CTA09/S463G), £7 million of these may be utilised to set against total profits.