LAM15040 - Excess expenses, losses and deficits: Set-off of BLAGAB trade losses: FA12/S123-127

A BLAGAB trade loss (LAM07310) of the period can be:

  • set against shareholders’ share of total profits (LAM15010) of the period (CTA10/S37 as applied by FA12/S123);
  • set against shareholders’ share of total profits for the previous 12 months (CTA10/S37 as applied by FA12/S123);
  • surrendered as group relief for the period (CTA10/PART5 as applied by FA12/S125).

If the company continues to carry on BLAGAB in the later period, any losses not used in the current period (either by offset against total profits or by group relief) or used in a prior period by way of carry back, are carried forward under the relevant provisions;

  • FA12/S124A(2) and FA12/S124C(3) for losses incurred in accounting periods beginning on or after 1 April 2017,
  • FA12/S124(4) for losses incurred in accounting periods beginning before 1 April 2017.

Carried forward BLAGAB trade losses:

  • must be offset as far as possible against the BLAGAB trade profit before they are set against other profits (FA12/S124A(5) and FA12/S124C(6) or carried forward ). For the period 1 April 2017 to 5 July 2018 this set-off is subject to the loss restriction rules (see LAM15400);
  • incurred before 1 April 2017 can only be set against BLAGAB trade profits (FA12/S124);
  • incurred on or after 1 April 2017 can be:
    • set against the shareholders share of total profits (FA12/12B). The set-off is subject to the loss restriction rules (see LAM15200). The rules applying between 1 April 2017 and 5 July 2018 are in LAM15400 onwards
    • surrendered as group relief (CTA10/S188BB(4))

If a claim is made to set-off carried forward BLAGAB trade losses against the shareholders’ share of total profits or to surrender as group relief in a subsequent period then those losses cannot be set against BLAGAB trade profits in subsequent periods.

A claim must be made within 2 years of the end of the accounting period in which the loss will be used and the company must carry on BLAGAB in the period for which a claim is made.

Where a BLAGAB trade loss (of the period or carried forward) is to be set off against total profits or surrendered as group relief two adjustments must be made:

  • firstly the loss must be reduced by any BLAGAB non-trading deficit, arising from debtor relationships, of the period in which the loss arose (FA12/S126), then
  • the BLAGAB management expenses of the period in which the BLAGAB loss is relieved must be reduced (at step 4 of FA12/S76) by the amount of loss utilised (FA12/S78(5)).

These adjustments are in place to ensure there is no double relief for these items and relief is given for these losses at the correct tax rates.