CTM82190 - Reform of Corporation Tax loss relief: Group relief for carried-forward losses: Comprehensive example
In this example, losses have been time apportioned on a monthly basis for simplicity. Normally, time apportionment should be made by reference to days. Companies B, L, R, I and O are members of the same group of companies for group relief purposes. None of the conditions that would make group relief for carried-forward losses unavailable apply. No deductions allowance has been allocated to any company for the relevant periods.
Company B has for its AP from 1 April 2018 to 31 March 2019 a trading loss of £200,000, management expenses of £130,000, and NTLR deficit of £170,000 which it carries forward to the subsequent AP. In the AP 1 April 2019 to 31 March 2020, Company B has total profits of £2,100,000 and management expenses of £100,000. In that AP, it makes a claim to set the carried-forward losses against its total profits, and a claim for group relief for carried-forward losses from Companies L and R. Additionally Company B makes a claim to carry back NTLR deficits of £250,000 from the AP 1 April 2020 to 31 March 2021. For the AP from 1 April 2019 to 31 March 2020, Company B’s relevant maximum calculated in accordance with section 269ZD(4) is £1,000,000.
Company L made a post-1 April 2017 loss of £100,000 which it carried forward to the AP from 1 January 2019 to 31 December 2019. It has not surrendered any part of the loss as group relief for carried-forward losses.
Company R makes £300,000 trading losses in its AP 1 April 2018 to 31 March 2019, which it carries forward to AP 1 April 2019 to 31 March 2020.
Company I previously made a claim for group relief for carried-forward losses for £90,000 of Company R’s losses in its accounting period 1 September 2018 to 30 August 2019.
Company O previously made a claim for group relief for carried-forward losses for £120,000 of Company R’s losses in its accounting period 1 June 2019 to 31 May 2020.
Company B’s claim for Company L’s losses
The amount of group relief for carried-forward losses that can be claimed by Company B is limited to the lower of:
- The unused parts of the surrenderable amount of Company L, and
- Company B’s relevant maximum for the overlapping period less any amount previously claimed for the same period.
Company B’s relevant maximum
The relevant maximum for the overlapping period is calculated as follows:
Step 1
The relevant maximum for the period calculated in accordance with section 269ZD(4) is £1,000,000.
Step 2
From the relevant maximum deduct any losses claimed for the period
| Description | Amount |
|---|---|
| Relevant maximum | £1,000,000 |
| Carried-forward trading losses | (200,000) |
| Carried-forward NTLRDs | (170,000) |
| Carried-forward management expenses | (130,000) |
| - | 500,000 |
Step 3
The amount after Step 2 is apportioned by reference to the proportion of the claim period included in the overlapping period, which is 9 months from 1 April 2019 to 31 December 2019.
£500,000 x 9/12 = £375,000
The relevant maximum for the overlapping period is £375,000. This is the maximum that Company B can claim as group relief for carried-forward losses from Company L, subject to the unused part of the surrenderable amounts of Company L.
Company L’s surrenderable amounts
Company L can only surrender as group relief for carried-forward losses the unused part of the surrenderable amount. This is the loss attributable to the overlapping period of 9 months from 1 April 2019 to 31 December 2019. The amount attributable to the overlapping period can be determined by time apportionment.
£100,000 x 9/12 = £75,000
As Company L has not previously surrendered any part of the £100,000, the unused part of the surrenderable amount is £75,000. This is the maximum the company can surrender as group relief for carried-forward losses to Company B.
Company B’s claim for group relief for carried-forward losses from Company L is therefore limited to the lower of
- The unused part of the surrenderable amount that is £75,000, and
- Its relevant maximum for the overlapping period that is £375,000.
Therefore Company B’s claim for group relief for carried-forward losses from Company L is restricted to £75,000 to set against its profits.
Company B’s claim for Company R’s losses
Company B’s relevant maximum
Company B’s claim for group relief for carried-forward losses from Company R is limited to the relevant maximum for the overlapping period less any amount previously claimed.
To calculate the amount previously claimed, first identify each prior claim for the same AP as the current claim. For each prior claim, work out the amount previously claimed as group relief for carried-forward losses.
The amount previously claimed by Company B for Company L’s losses is calculated as follows
Step 1
Identify the overlapping period for the prior claim of Company L’s losses. The overlapping period is the 9 months from 1 April 2019 to 31 December 2019.
Step 2
Identify the period that is common to the claim for Company L’s losses and the claim for Company R’s losses. The overlapping period for Company R’s losses is 1 April 2019 to 31 March 2020. The overlapping period for Company L’s losses is 1 April 2019 to 31 December 2019. The common period is the 9 months from 1 April 2019 to 21 December 2019.
Step 3
Determine the amount of group relief for carried-forward losses given on the prior claim. As the whole overlapping period for the claim for Company L’s losses is included in the common period, the group relief for carried-forward losses given to Company B of £75,000 does not need to be apportioned to the common period.
£75,000 is the total amount previously claimed for the overlapping period for the claim for Company L’s losses.
The group relief for carried-forward losses that can be claimed by Company B from Company R is limited to its relevant maximum less the amount previously claimed. The relevant maximum for the overlapping period is £500,000 as calculated previously at Step 2. No further apportionment is required at Step 3 as the whole of the claim period is included in the overlapping period, which is 1 April 2019 to 31 March 2020.
£500,000 - £75,000 = £425,000
£425,000 is the maximum Company B can claim from Company R, subject to the unused part of Company R’s surrenderable amounts.
Company R’s surrenderable amounts
To determine the amount of Company R’s losses that may be surrendered to Company B, first determine the surrenderable amounts for the overlapping period for the claim. The overlapping period is 1 April 2019 to 31 March 2020. As Company R’s surrender period matches the overlapping period, there is no apportionment of the surrenderable amount. This means that £300,000 of Company R’s losses relate to the overlapping period.
Next determine the amount of any part of the surrenderable amount for the overlapping period that have been used in prior claims by Company I and Company O as follows:
Company I’s prior claim
Step 1
Identify the overlapping period of Company I’s prior claim. The overlapping period is 1 April 2019 to 30 August 2019.
Step 2
Identify the period that is common to Company I’s and Company B’s claims. The overlapping period for Company I’s claim is 1 April 2019 to 30 August 2019. The overlapping period for Company B’s claim is 1 April 2019 to 31 March 2020. The common period is the 5 months from 1 April 2019 to 30 August 2019.
Step 3
Determine the surrenderable amount used for Company I’s prior claim for the common period. Take the proportion of the overlapping period of the claim that is included in the common period, and apply that to the group relief for carried-forward losses given to Company I.
The whole of the overlapping period of the claim is included in the common period 1 April 2019 to 30 August 2019. Therefore no further apportionment is necessary.
£90,000 of the surrenderable amounts for the overlapping period for Company B’s claim has been used in Company I’s prior claim.
Company O’s prior claim
Step 1
Identify the overlapping period of Company O’s prior claim. The overlapping period is 1 June 2019 to 31 March 2020.
Step 2
Identify the period that is common to Company O’s and Company B’s claims. The overlapping period for Company O’s claim is 1 June 2019 to 31 March 2020. The overlapping period for Company B’s claim is 1 April 2019 to 31 March 2020. The common period is 10 months from 1 June 2019 to 31 March 2020.
Step 3
Determine the surrenderable amount used for Company O’s prior claim for the common period. Take the proportion of the overlapping period of the claim that is included in the common period, and apply that to the group relief for carried-forward losses given to Company O.
The whole of the overlapping period of the claim is included in the common period 1 June 2019 to 31 March 2020. Therefore no further apportionment is necessary.
£120,000 of the surrenderable amounts for the overlapping period for Company B’s claim has been used in Company O’s prior claim.
The amount of group relief for carried-forward losses that may be surrendered by Company R is
- The surrenderable amount for the overlapping period of Company B’s claim that is £300,000,
less
- The amount used in Company I’s and Company O’s prior claims of £90,000 + £120,000 = £210,000.
The maximum group relief for carried-forward losses that Company R can surrender is therefore £300,000 – 210,000 = £90,000.Company B’s claim for group relief for the carried-forward losses of Company R is limited to the lower of
- The unused part of the surrenderable amount that is £90,000, and
- Its relevant maximum less amount previously claimed for the overlapping period that is £425,000
Therefore Company B’s claim for group relief for carried-forward losses from Company R is restricted to £90,000 to set against its profits.
Company B’s profits chargeable to Corporation Tax for the AP ended 31 March 2020 will be calculated as follows:
| Description | £ (000) | Notes |
|---|---|---|
| Total profits | 2,100 | - |
| Management expenses of the same AP (CTA09/S1219) | 100 | Deduction for management expenses of the same AP is given before any such other deduction (CTA09/S1219(1A)). |
| Trading loss carried-forward (CTA10/45(4) | 200 | Company B chose make a claim to set its carried-forward losses against total profits. However, even if the company did not make the claim, to calculate the amount of profits that can be relieved under Part 5A, it is treated as if it had used these losses to the fullest extent possible (CTA10/S188CD). |
| Management expenses carried-forward (CTA09/S1223) | 130 | Company B chose make a claim to set its carried-forward losses against total profits. However, even if the company did not make the claim, to calculate the amount of profits that can be relieved under Part 5A, it is treated as if it had used these losses to the fullest extent possible (CTA10/S188CD). |
| NTLR deficits carried-forward (CTA09/S463G) | 170 | Company B chose make a claim to set its carried-forward losses against total profits. However, even if the company did not make the claim, to calculate the amount of profits that can be relieved under Part 5A, it is treated as if it had used these losses to the fullest extent possible (CTA10/S188CD). |
| - | 1,500 | - |
| Group relief for carried-forward losses: 75,000 + 90,000 | 165 | Group relief for carried-forward losses under CTA10/S188BB(2) is given before losses carried back. |
| - | 1,335 | - |
| NTLR deficit carried back (CTA09/S463B) | 250 | Group relief for carried-forward losses under CTA10/S188BB(2) is given before NTLR deficit carried back. |
| Profits chargeable to Corporation Tax | 1,085 | - |