OT21055 - Corporation Tax Ring Fence: Losses and Group Relief: Losses Carried Forward: Losses arising before 1 April 2017

CTA10/S45

The legislation that provides relief for carried-forward ring-fence losses was changed by F(No 2)A17/SCH4/Part6 and the treatment of the losses depends on whether these arose before or on or after 1 April 2017.

F(No 2)A17/SCH4 introduced a restriction on the amount of relief that can be allowed for carried-forward losses which applies to some ring fence losses relieved after 1 April 2017.

Where an accounting period (AP) begins before and ends after 1 April 2017, that period is subject to commencement provisions (F(No 2)A17/Part12).

Full guidance on the changes that apply from 1 April 2017 can be found at CTM04800 onwards. The following outlines the rules that apply to relief for ring fence losses before and after this date.

Relief against profits before 1 April 2017

Under CTA10\S45, where a company incurs a loss in a trade, that loss can be carried forward and allowed against subsequent income from the same trade.

Where a company carries on one world-wide petroliferous trade, but is deemed to have two separate trades under CTA10\S279 because of the ring fence, a non-ring fence loss can only be carried forward and allowed against subsequent non-ring fence income. Non-ring fence losses cannot be carried forward and allowed against ring fence profits of the same trade.

In principle, the same position arises for ring fence activities, but CTA10\S304 recognises the basic premise that there is no objection to ring fence losses being allowed against non-ring fence profits. UnderS304, ring fence losses incurred in an AP can be allowed under CTA10\S45 against future income from non-ring fence activities as long as the non-ring fence and ring fence activities comprise a single trade. It should be noted that relief is due whether or not the non-ring fence element was being carried on during the AP in which the loss in the ring fence trade was incurred.

Where losses are carried forward under CTA10\S939 (company reconstructions without a change of ownership), losses must continue to be segregated as above so that non-ring fence losses of the trade transferred are not allowed against ring fence profits of that trade.

Relief against profits after 1 April 2017

Losses arising before 1 April 2017

Losses incurred in a ring fence trade before 1 April 2017 are carried forward under CTA10/S45 and are set against future profits of the same ring fence trade at the earliest opportunity.

Relief for these losses is not restricted under CTA10/Part7ZA (CTA10/S304(7)).

From 1 April 2017, companies may claim not to use losses carried forward under CTA10/S45 in the next subsequent profit making period, and may instead carry the loss forward to a later AP. Any such claims must be made within two years of the end of the AP in which the company wishes to disclaim the use of losses (CTA10/S45(4A)).