Changes to the reform of loss relief rules for Corporation Tax
Published 3 March 2021
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This publication is available at https://www.gov.uk/government/publications/changes-to-the-reform-of-loss-relief-rules-for-corporation-tax/changes-to-the-reform-of-loss-relief-rules-for-corporation-tax
Who is likely to be affected
Companies and unincorporated associations that pay Corporation Tax and have carried-forward losses.
General description of the measure
This measure makes amendments to the reform of loss relief rules to ensure the legislation works as intended and to reduce administrative burdens.
Policy objective
Corporation Tax loss reform increased flexibility over the use of tax losses against profits whilst ensuring that businesses pay tax in each accounting period that they make substantial profits.
This measure makes changes to ensure that the legislation works as intended and will protect revenue by giving relief for carried-forward losses only to the extent intended.
Background to the measure
The Corporation Tax loss reform rules were enacted in sections 18 and 19 and Schedule 4 of Finance (No 2) Act 2017 and apply from 1 April 2017 and were further amended by FA 2019. A tax information and impact note was published on 5 December 2016 and gives further information on the background to the rules.
Since 2017, HMRC has evaluated the Corporation Tax loss reform rules and identified a number of areas where changes are desirable.
Some groups may be prevented from accessing an allowance to which they are entitled following an acquisition or demerger. This is an unintended consequence of the legislation and is not in line with the policy objective.
Further improvements have been identified in the following areas:
- transfer of a trade where there has been a change of ownership
- group relief
- loss restriction computation
- the deductions allowance, including the group allocation statement
Detailed proposal
Operative date
The amendment to the nomination procedure and submission of a group allowance statement where a deductions allowance group ceases to exist will apply retrospectively with effect from 1 April 2017.
The following amendments will be treated as having always had effect:
- amounts of in-year reliefs actually claimed to be included in the loss restriction calculation
- capping relevant profits to nil where the allocated deductions allowance exceeds qualifying profits.
The amendments required as a consequence of the introduction of Corporate Capital Loss Restriction (CCLR) to include/refer to capital loss restriction in S296ZF(3) CTA 2010 and s188DD will be treated as having always had effect since the introduction of CCLR on 1 April 2020.
The following amendments will apply for accounting periods beginning on or after 1 April 2021:
- group relief for carried-forward losses
- amendment to correct a group relief circularity issue
- amendment to the time limits and requirement to submit a group allowance allocation statement
- the amendment of the formula for allocation of the deductions allowance
The following amendments will apply with effect from 1 April 2021:
- the extension of the application of “change of ownership” to include Chapter 2E will apply for acquisitions made (on or) after 1 April 2021
Current law
The current law is in Part 5, Part 5A, Part 7ZA (restrictions on certain deductions) and Part 14 (change in company ownership) of Corporation Tax Act 2010 (CTA 2010).
Proposed revisions
Legislation will be introduced in Finance Bill 2021 to ensure groups have access to the deductions allowance to which they are entitled for the period prior to a change in the ultimate parent through acquisition or demerger. Amendments will be made to:
- allow a nomination to be made where there was not a valid nomination at the date the group ceased to exist for the purposes of a deductions allowance group. A nominated company will be able to submit a group allowance allocation statement (GAAS) for periods up to the date the group ceased to exist and thereby have access to a deductions allowance for that period (section 269ZS of CTA 2010)
- transitional provisions will allow an otherwise out of time GAAS to be submitted.
Other amendments will be made to:
- extend the definition of “change of ownership” in section 719(4A) and 721(4) CTA 2010 so that it also applies to Chapter 2E, Part 14 CTA 2010
- group relief for carried-forward losses to allow carried-forward losses to be surrendered where the surrendering company has covered its profits fully (section 188BE of CTA 2010).
- resolve a circularity issue concerning the interaction of group relief (Part 5) and the calculation of qualifying profits (Part 7ZA) and allow the computation to work as intended (section 137(4)(b) of CTA 2010)
- the loss restriction calculation to cap the figure of relevant profits at nil where the allocated deductions allowance exceeds qualifying profits and to ensure only in-year reliefs actually claimed are included in the loss restriction calculation (section 269ZFA (1) of CTA 2010)
- the formula for allocating the group deductions allowance to group companies to allow the nominated company to allocate the deductions allowance as they choose (section 269ZV(5) of CTA 2010)
- extend the time limits for submitting an original group allowance statement to include the enquiry time limits
- remove the requirement for a nominated company to submit a group allowance statement where no group companies have used any carried-forward losses in the period (section 269ZT of CTA 2010)
Summary of impacts
Exchequer impact (£m)
| 2020 to 2021 | 2021 to 2022 | 2022 to 2023 | 2023 to 2024 | 2024 to 2025 | 2025 to 2026 |
|---|---|---|---|---|---|
| Nil | Nil | Nil | Nil | Nil | Nil |
This measure is not expected to have an Exchequer impact .
Economic impact
This measure is not expected to have any significant economic impacts.
Impact on individuals, households and families
This measure has no impact on individuals as it only affects businesses.
The measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts
It is not anticipated that this measure will impact on groups sharing protected characteristics.
Impact on business including civil society organisations
This measure is expected to have a negligible impact on fewer than 100 businesses that pay Corporation Tax and have carried forward losses and are affected by the issues addressed by this measure. This measure makes minor technical amendments. One-off costs will include familiarisation with the changes. There are not expected to be any continuing costs.
Continuing savings could include the amendment to s188BE which will make the group relief legislation easier to apply.
Customer experience is expected to remain broadly the same as this measure does not change how businesses interact with HMRC.
This measure is expected to have no impact on civil society organisations.
Operational impact (£m) (HMRC or other)
The additional costs or savings for HMRC in implementing the proposed revisions set out in this measure are anticipated to be negligible.
Guidance will be updated to reflect the changes made.
Other impacts
Other impacts have been considered and none has been identified.
Monitoring and evaluation
The measure will be kept under review through regular communication with affected taxpayer groups.
Further advice
If you have any questions about this change, please contact Katherine Acton (Corporation Tax) on Telephone: 03000 569745 or email: katherine.acton@hmrc.gov.uk or Eva Upali (Corporation Tax) on Telephone: 03000 542 465 or email: eva.upali@hmrc.gov.uk.