Corporation tax: CT loss reform: claims
From 1 April 2017, new and altered claims procedures for carried-forward trade losses, NTLRDs, management expenses and UK property business losses mean that a company can choose whether and which of these losses to relieve in an accounting period.
Companies must comply with any rules on availability and extent of relief, including the CT loss restriction (CTM05000). However, within the limits of the relief available, they are generally able to choose, for example, the order in which to use the carried-forward losses affected (CTM04810), or whether to use these losses at all or to carry them forward to later periods.
Broadly, the legislation operates so that;
- Where losses are carried-forward for relief against a particular type of profit only, the losses are relieved where possible, unless the company makes a claim to prevent this. This applies, for example, to trading losses carried forward under CTA10/S45 or S45B for relief against profits of the same trade only.
- Where losses are carried-forward for relief against total profits, the company must make a claim for the losses to be used.
Note that in practice, these claims do not require companies to submit separate documents to claim or disclaim use of carried-forward losses. Companies claim, for example, to use post-1 April 2017 trade losses carried-forward under CTA10/S45A, by completing the relevant box on the CT600 to deduct those losses from total profits. Companies can however also make their claims outside the return, in accordance with rules for claims affecting more than one accounting period (CTM90630). This is subject to the time limits set out below.
Prior to 1 April 2017, management expenses were deducted in priority to other deductions from total profits (CTA09/1219(1A)).
This rule continues to apply to management expenses deducted from profits of the period in which they arise.
However, to enable the increased flexibility set out above, this rule no longer applies to carried-forward management expenses. Where carried-forward management expenses are set against profits arising from 1 April 2017, there is no rule requiring that they be deducted in priority to other deductions from total profits.
Losses not set against total profits
Unrelieved trade losses arising before 1 April 2017 and certain trade losses of later periods are carried-forward and set against profits of the same trade only (CTA10/S45, S45B).
Similarly, unrelieved non-trading loan relationship deficits arising before 1 April 2017 and certain deficits of later periods are carried-forward and set against non-trade profits only (CTA09/S457, S463H).
In both cases, relief is automatic. However, the company can make a claim to prevent this. The claim can relate to all or part of the loss or deficit.
- Claims relating to trade losses carried-forward for relief against profits of the same trade only are made under CTA10/S45(4A) or CTA10/S45B(5) (CTM04120).
- Claims relating to non-trading loan relationship deficits carried-forward for relief against non-trading profits only are made under CTA09/S458 or CTA09/S463H(7).
In either case, claims must be made within two years of the end of the period affected (CTA09/S458(2), CTA09/S463H(7), CTA10/S45(4C) and CTA10/S45B(6)). That is, within two years of the period in which relief would otherwise be given. HMRC have the discretion to allow late claims under CTA10/S45B(6).
Losses set against total profits
Most carried-forward losses within the scope of the loss reform arising after 1 April 2017 can be carried-forward and set against total profits.
In these cases, the company must make a claim for the loss to be relieved.
It is not necessary for the loss to be used to the full extent possible. The company can specify the amount of the loss they want to relieve. The remainder will generally be carried-forward to the subsequent period.
The specific provisions relating to the claims are:
- Non-trading loan relationship deficits (NTLRDs) (CTA09/S463G(7)).
- Trade losses (CTA10/S45A(5)).
- Non-trading losses on intangible fixed assets (CTA09/S753).
- Management expenses (CTA09/S1223(3B)).
- Losses of a UK property business (CTA10/S62(5A) and CTA10/S63(4).
All of the above claims must be made within two years of the end of the accounting period of relief, or such further period as HMRC may allow (CTA09/s463G(10), CTA10/S45A(7), CTA09/S753(2), CTA09/S1223(3D), CTA10/S62(5C), CTA10/S63(6)). Claims can be made within the company’s corporation tax return or as a separate claim, subject to the time limits.
No change has been made to claims procedures for carried-forward NTLIFAs, which companies were already able to choose to relieve in whole, in part or not at all (CTA09/S753(1)).