CFM32040 - Loan relationships: non-trading deficits: carry forward

CTA09/S463G, S463H and S463I

Carrying foward non-trading deficits

For non-trading deficits that arise in an accounting period which begins after 1 April 2017, any amount of the deficits that is not the subject of a claim to be set off against profits of the deficit period or earlier periods and which is not surrendered as group relief is carried forward under S463G.

The company may claim to set off some or all of the remaining deficits against its total profits of the next period. As a result of the changes to the rules made by F(No.2)A17, this can be set against profits of any kind.

Any amount of carried forward non-trading deficits that is not relieved in the first accounting period after the deficit period and is not surrendered as group relief can continue to be carried forward and potentially set off against the total profits of later periods under S463I.

Loss restriction on carried-forward losses

F(No. 2)A17 introduced a restriction on the amount of relief that companies can obtain for carried-forward losses, at CTA10/Part 7ZA.

From 1 April 2017, companies with profits in excess of any deductions allowance (which is a maximum of £5 million) are no longer able to reduce profits to nil by using relief for carried-forward losses. Broadly, a company’s profits after deduction of any in-year reliefs and the deductions allowance can only be reduced by up to 50% by carried-forward losses.

The restriction has effect for profits arising from 1 April 2017 but can apply to deficits carried forward from any period, including losses carried forward at 1 April 2017. Details of this restriction can be found at CTM05000+.

Investment business becomes small or negligible

S463H applies where an investment business becomes small or negligible in the period in which a deficit arose or a later period. Where this is the case, the non-trading deficit may only be carried forward and set against non-trading profits in future accounting periods.

Pre-2017 non-trading deficits

For non-trading deficits arising in an accounting period that begins before 1 April 2017, the carry forward provisions are governed by CTA09/S457. This provides that a carried forward non-trading deficit can only be set against the company’s non-trading profits for the following years.

So, for example, the company can set the deficit against chargeable gains, property income, miscellaneous income as well as non-trading profits from its loan relationships and derivative contracts.

CTA09/S458 allows the company to claim that a specified amount of the pre-2017 deficit carried forward is not to be set against the non-trading profits of the following period.

The company must make the claim within two years of the end of the accounting period in which the brought-forward non-trading deficits would otherwise be utilised.

Any amount of a brought forward non-trading deficit that is not used in a period (either because it exceeds the profits it could be set against, or because the company wishes for it to be excluded) can be carried forward to the following period.

Such an amount of non-trading deficit is then treated as a non-trading deficit of the first accounting period after the deficit period, which can be carried forward and set against non-trading profits of later accounting periods.

Straddling periods

Where a company has an accounting period that straddles 1 April 2017, the periods falling before and after that date are treated as separate accounting periods for the purposes of determining the pre-2017 and post-2017 amounts. See CTM04880 for further details.