CTM05230 - Corporation tax: restriction on relief for carried-forward losses: deductions allowance and the company tax return

CTA10/S269ZZ and CTA10/S269ZZA

A company’s tax return must specify the amount of deductions allowance it is entitled to for the period, unless it is not claiming relief for any carried-forward losses to which the restriction applies (CTA10/S269ZZ(2), CTM05120). Where a company does not specify the amount of the deductions allowance it is entitled to for the period, any relief claimed for carried-forward losses is subject to restriction, i.e. only 50% of the company’s profits may be relieved by carried-forward losses.

Even where companies are in a group (CTM05160) and the nominated company for that group has submitted a group allowance allocation statement (CTM05200), the individual companies still each need to specify the amount of their deductions allowance in their individual tax returns. They can do this, for example, by including the amount of their deductions allowance in their tax computations.

It is most unlikely that a company that is a member of a group and is not making a claim for restricted carried-forward losses will be allocated any part of a group deductions allowance (CTM05190). However, a company that is not a member of a group will be entitled to a non-group deductions allowance (CTM05130) whether or not it claims relief for carried-forward losses. Where there is no relief claimed for restricted carried-forward losses, the deductions allowance need not be specified in the company’s tax return.

Trading profits, non-trading profits and chargeable gains deductions allowance

If a company has streamed restricted carried-forward losses (CTM05020), it will need to calculate its relevant maxima for trading profits, non-trading profits and chargeable gains where relevant (CTM05090). These calculations involve, respectively, the company’s trading profits deductions allowance, non-trading income profits deductions allowance and chargeable gains deductions allowance (CTM05080).

Where the company needs to calculate its relevant maximum for trading profits, it should specify the amount of its trading profits deductions allowance in its return (CTA10/S269ZB(7)). The amount of the trading profits deductions allowance is then included in calculating the relevant maximum for trading profits.

Where the company needs to calculate its relevant maximum for non-trading income profits, it should specify the amount of its non-trading income profits deductions allowance in its return (CTA10/S269ZC(5)). This is then included in calculating the relevant maximum for non-trading profits.

Where the company needs to calculate its relevant maximum for chargeable gains, it should specify the amount of its chargeable gains deductions allowance in its return (CTA10/S269ZBA(5)). This is then included in calculating the relevant maximum for chargeable gains.

The sum of the company’s trading profits, non-trading profits and chargeable gains deductions allowances cannot exceed the total amount of the company’s deductions allowance for the accounting period.

Excessive specification of deductions allowance

CTA10/S269ZZA

If a company’s tax return for an accounting period specifies an excessive amount as the deductions allowance, the trading profits deductions allowance, the non-trading profits deductions allowance or the chargeable gains deductions allowance the company must, if it is in time to do so, amend the tax return so that the amount specified is not excessive (CTA10/S269ZZA(1) and (2)).

If an officer of HMRC considers that excessive relief has been given as a consequence of the amount specified being excessive, he or she may make an assessment to tax in the amount which in his or her opinion ought to be charged. This is without prejudice to the power to make a discovery assessment under FA98/SCH18/PARA41 (CTA10/S269ZZA(3) and (5)).

If an amount becomes excessive as a consequence of an alteration to the group deductions allowance allocated to the company and the company has failed, or is unable, to amend its return, an assessment by HMRC will not be out of time if made within 12 months of the date of the alteration (CTA10/S269ZZA(4)).