CTM04810 - Corporation tax: CT loss reform: introduction

Finance (No.2) Act 2017

The reform of Corporation Tax loss relief was introduced in F(2)A17.

The reform has two aims:

  • To restrict the amount of loss relief available to businesses with substantial profits, (the restriction) (CTM05000); and
  • To allow most carried-forward losses arising from 1 April 2017 to be used more flexibly against the total taxable profits, rather than particular types of profits, of a company and its group members (the relaxation) (CTM04840).

Who is affected?

The rules relating to both the restriction and relaxation apply to all companies and unincorporated associations that pay Corporation Tax (CT) and have carried-forward losses.

In practice, where a company or, if a company is in a group, the group of companies, has profits up to the level of their deductions allowance (CTM05120), the relief they can obtain for carried-forward losses will be unaffected by the restriction but will still benefit from the relaxation.

When does it apply?

The rules apply from 1 April 2017:

  • The restriction applies to restrict relief for carried-forward losses incurred in any period against profits arising from 1 April 2017.
  • The relaxation applies to carried-forward losses arising from 1 April 2017. Losses that arose before that date do not benefit from the relaxation in any period.

Accounting periods straddling 1 April 2017 are subject to commencement provisions (CTM04880).

From 1 April 2020, the restriction is extended to include capital losses carried forward (FA20/Sch4).