OT21795 - Energy Profits Levy: Loss relief and group relief  

EPLA22\S10 & Sch1

Schedule 1 Part 1 – carry back or forward of qualifying levy losses

Loss relief is available within the levy but there is no cross over to any other ring fence taxes.

Carry back of qualifying levy losses

Where a company makes a qualifying levy loss in a period and was carrying on the trade in an earlier accounting period, the company can claim to carry back the qualifying levy loss against levy profits in an earlier period. This is provided that those profits fall within the period of 12 months ending immediately before the loss-making period begins (EPLA22\Sch1 para 1(3)) (although there is an exception to this rule in the case of “terminal levy losses” which is discussed below).

Where an AP overlaps i.e. where the AP falls partly within the 12 months ending immediately before the loss-making period begins, the amount that can be deducted cannot exceed an amount equal to the overlapping proportion of the company’s qualifying levy profits of that period (EPLA22\Sch1 Para 2).

The losses can be carried back and set against the earlier profits to the extent that they can’t be deducted under an EPLA22\Sch1 para 1(3) claim in a subsequent accounting period (EPLA22\Sch1 para 1(4)).

The company’s claim must be made within the period of two years after the end of the loss-making period, or within such further period as an officer of Revenue and Customs may allow (EPLA22\Sch1 para 1(5)).

For relief to be available, the trade must be undertaken on a commercial basis with a view to the making of a profit, or a reasonable expectation of making such a profit (EPLA22\Sch1 para 3(1)).

If during the loss-making period there is a change in the way in which the trade is carried on, the trade is treated as having been carried on throughout that period in the way in which it is being carried on by the end of that period (EPLA22\Sch1 para 3(2)).

Terminal qualifying levy losses (EPLA22\Sch1 para 4) are losses made in the final 12 months of trade or the overlapping proportion of any qualifying accounting period that ends, but does not begin, during the final 12 months.

Where a company ceases to carry on a ring fence trade and has made a qualifying terminal levy loss in that period, the levy loss can be carried back three years before that period begins and set off against levy profits.

Terminal levy losses cannot be carried back where any activities of the trade begin to be carried on by a company that is not chargeable to the levy and where the ceasing to carry on the trade arises directly or indirectly in connection with arrangements where the main purpose, or one of the main purposes, is to carry back levy losses.

Carry forward of qualifying levy losses

Unrelieved qualifying levy losses can be carried forward to subsequent periods and set off against levy profits so long as the company continues to carry on the ring fence trade (EPLA22\Sch1 para 5).

Schedule 1 Part 2 - Group relief for qualifying levy losses

Where a company has a qualifying levy loss it may surrender that loss to another company which is in the same group for group relief purposes. This is referred to here as ‘levy group relief’ (EPLA22\Sch1 para 6).

Two companies are part of the same group if one is the 75% subsidiary of another or both are 75% subsidiaries of a third company.

Claims for levy group relief

The claimant company may make a claim for levy group relief provided the surrendering company consents to the claim, there is an overlapping period for the claim and surrender periods and the claimant and surrendering companies are part of the same group at a time during that overlapping period (Sch1 para 9).

Relief is given by way of a deduction from the company’s qualifying levy profits for the claim period. The deduction must be equal to the amount of the surrendering company’s surrenderable qualifying losses. Alternatively, if the claim only relates to a proportion of those surrendering company’s surrenderable losses, then the deduction must be equal to that proportion.

Any deduction relating to a claim for group relief must be made after any claim for relief under EPLA22\Part 1 of Schedule 1 (carry back or forward of qualifying levy losses).

The amount to be surrendered and claimed is subject to the limitations in CTA10\S138 to S142 as if references to group relief in those sections were to apply to levy group relief.

A claim to levy group relief must be made within 4 years of the end of the AP to which it relates.

Arrangements for transfers of companies (para 12)

CTA10\S154 and 155A to 156 apply for the purposes of EPL as they apply for CTA10\Part 5 but as if the references in sections 155A (1) and 155B (1) to “or 155(3)” were omitted. Further guidance on the application of these rules can be found here: CTM80165

Payments for relief (paras 13 & 14)

Where a company makes a valid claim to levy group relief and makes a payment to the surrendering company that does not exceed the total amount claimed, that payment is not brought into account in calculating EPL and CT liability and is not treated as a distribution.

Schedule 1 Part 3 – general provision

Prohibition on claiming relief more than once for the same amount (para 17)

It is not possible to claim relief more than once for the same amount whether it is by giving levy group relief and by giving other relief (for any AP) to the surrendering company, or by giving levy group relief more than once.

Change in company ownership (para 18)

Where there is a change in company ownership, CTA10\Part 14 (change in company ownership) applies to relief against EPL profits, with any necessary modifications, as it does to corresponding relief from corporation tax. Further guidance can be found here: CTM06855

Transfers of trade without a change of ownership (para 19)

CTA10\Chapter 1 applies to relief against EPL profits, with any necessary modifications, as it applies in relation to the corresponding relief from corporation tax. Further guidance can be found here: CTM06005.

Counteracting tax advantage involving qualifying levy losses (para 20)

A levy advantage arising by reference to a qualifying levy loss that arises directly or indirectly in connection with, or otherwise in consequence of, disqualifying arrangements is to be counteracted by the making of such adjustments as are just and reasonable.

Arrangements are “disqualifying” if:

(a) the main purpose, or one of the main purposes, of the arrangements is to obtain a levy advantage by reference to a qualifying levy loss, and

(b) it is reasonable, taking account of all the relevant circumstances:

(i) to conclude that the arrangements are, or include steps that are, contrived, abnormal or lacking a genuine commercial purpose, or

(ii) to regard the arrangements as circumventing the intended limits of relief provided by this Schedule or as otherwise exploiting shortcomings in this Act.

The definition for a ‘levy advantage’ is the same as the definition for ‘relevant levy advantage’ as set out above in OT21760. Relevant circumstances is not defined. So relevant circumstances might relate to the arrangements, or to the tax advantage. Relevant circumstances that relate to the particular arrangements may include contrived or abnormal steps, the absence of a genuine commercial purpose, or whether the substantive results are inconsistent with any principles of the legislation.