CTM82030 - Corporation Tax: Group relief for carried-forward losses: Restrictions

CTA10/S188BC-BF

Losses that arise before 1 April 2017

CTA10/S188BC

Losses of certain types may be surrendered as group relief for carried-forward losses. Of these types, only losses that arise on or after 1 April 2017 may be surrendered. Where a company's accounting period straddles 1 April 2017, the losses carried-forward from that accounting period must be apportioned to determine those that arise on or after 1 April 2017.

Restriction when surrendering company has an investment business that has become small or negligible

CTA10/S188BD

Companies with investment businesses cannot surrender certain types of loss as group relief for carried-forward losses if the investment business becomes small or negligible before the beginning of the surrender period. The types of carried-forward losses that may not be surrendered in such cases are:

  • Non-trading loss on intangible fixed assets (CTA09/S753(3)) (CTM80141)
  • Management expenses of an investment business (CTA09/S1223) (CTM80140)
  • UK property business losses (CTA10/S62(5)(a) and S63(3)(a)) (CTM80135)

The meaning of a company with an investment business is the same as in CTA09/PART16. There is no further description of ‘small or negligible’ in the legislation, so these terms take their natural meanings and each case will depend upon the particular facts and circumstances.

Where the business or trade becomes small or negligible (CTM06390), losses carried forward will not be available for surrender under CTA10/PART5A after the date the business or trade becomes small or negligible, even where the trade or business is subsequently revived.

Where a business or trade becomes small or negligible, trading losses carried-forward and non-trading loan relationship deficits carried-forward are allowed only under CTA10/S45B and CTA09/S463H and are not included in the list in CTA10/S188BB of carried-forward losses that may be surrendered as group relief. 

Restriction when surrendering company could use loss itself

CTA10/S188BE

A company may not surrender an amount of loss as group relief for carried- forward losses if for the accounting period, the company could deduct the loss from its total profits itself. 

Example

In an accounting period from 1 January 2020 to 31 December 2020, X Ltd has £20m trading profit and £5m non-trading profit. It has £10m of pre-April 2017 trading loss carried forward, and £6m of post-April 2017 trading loss carried forward. It also has £1m of pre-April 2017 non-trading loan relationship deficits carried forward and £4m post April 2017 non-trading loan relationship deficit. 

The deductions allowance for the group has been allocated to X Ltd who has chosen to use the whole £5m for trading profits.

Y Ltd, in the same group, also has an accounting period from 1 January 2020 to 31 December 2020, and has profits of this period available for relief. Y Ltd cannot make a claim for group relief for carried-forward losses unless , for example, the claimant company must have used its own carried-forward losses first. Y Ltd has done so. 

In accordance with the general restriction on relief for carried-forward losses the maximum amounts of the various losses that X Ltd can use to relieve its own profits are as below:

The trading relevant maximum is:

((20m - 5m) x 50%) + 5m = £12.5m

The non-trading relevant maximum is 5m x 50% = £2.5m 

The relevant maximum for total profits is ((25m-5m) x 50%) + 5m = £15m

X Ltd can set off £10m of the pre-2017 trading losses against trading profits and £1m of the pre-2017 non-trade loan relationship deficits against non-trading profits.  The balance of the relevant maximum is therefore £4m (relevant maximum £15m less £10m pre-2017 trading losses less £1m pre-2017 non-trade loan relationship deficits).  X Ltd can then make a claim to set off £4m of post-April 2017 losses against total profits.

X Ltd can choose to surrender all or part of the balance of £6m post-April 2017 losses as group relief for carried-forward losses to Y Ltd regardless of whether or not it uses its relevant deductions up to the relevant maximum of £15m under CTA10/S269ZD(2).


Restriction when surrendering company has no income generating assets

CTA10/PART5A/S188BF

The surrendering company may not surrender any loss or other amount as group relief for carried-forward losses if it has no assets capable of producing income at the end of the surrender period. 

Further restrictions for certain companies

There are restrictions on certain types of insurance companies.

There are also restrictions on companies with permanent establishments in the UK or overseas, or that are dual resident.