CTM04830 - Corporation tax: CT loss reform: restriction

CTA10/PART7ZA

With effect from 1 April 2017, companies with profits in excess of any deductions allowance (which is a maximum of £5 million) (CTM05120) are no longer able to reduce profits to nil by using relief for carried-forward losses. Broadly, a company’s profits after deduction of any in-year reliefs (CTM05060) can only be reduced using carried-forward losses up to a maximum amount of;

  • The company’s deductions allowance,Plus
  • 50% of any remaining profits in excess of the deductions allowance.

The restriction has effect for profits arising from 1 April 2017 but applies to all losses carried forward, including those carried forward from periods prior to 1 April 2017.

For full guidance on the loss restriction introduced in F(2)A/S17 see CTM05000. For an overview see CTM05030.

Smaller companies

There is no restriction if a company’s profits are below the amount of their deductions allowance. Most small companies or groups are therefore unlikely to have their use of carried-forward losses restricted.

However, small companies or groups using carried-forward losses in periods from 1 April 2017 may still need to provide HMRC with some information to show, for example, the amount of their deductions allowance, and, in the case of groups, to allocate the deductions allowance amongst the group members.

Deductions allowance

A company that is not in a group (CTM05130) has a deductions allowance of £5 million per 12 month accounting period from 1 April 2017.

A company that is a member of a group has a deductions allowance of whatever amount is allocated to it on the group allowance allocation statement, see below. This is because group members share a single £5 million deductions allowance per 12 month accounting period from 1 April 2017. The procedure they use to do this is summarised at CTM05170.

In both cases, the company must state the amount of its deductions allowance on its return (CTA10/S269ZZ). It could do this as part of its tax computations.

A company with streamed restricted carried-forward losses (CTM05020) will also need to show how it has allocated its deductions allowance between its trading and non-trading profits (CTM05080). This will apply, for example, if a company has carried-forward trade losses that it incurred before 1 April 2017, or carried-forward non-trading loan relationship deficits that it incurred before 1 April 2017. For accounting periods beginning on or after 1 April 2020, companies will also have to show the allocation of the deductions allowance to any chargeable gains of the period.

The deductions allowance applies only to determine the amount of carried-forward losses a company can use. It is not a tax-free allowance and does not itself provide any relief from tax. Rather, it enables companies to gain greater use of their carried-forward losses than would otherwise be possible in accordance with the restriction.