This part of GOV.UK is being rebuilt – find out what beta means

HMRC internal manual

Company Taxation Manual

Corporation tax: restriction on relief for carried-forward losses: relevant profits

CTA10/S269ZF(1) and (2) and CTA10/S269ZFA

Relevant profits are calculated by deducting the amount of the company’s deductions allowance (CTM05120) from its qualifying profits (CTM05070).

Where the company’s restricted carried-forward losses include streamed losses (CTM05020), this will require allocating the deductions allowance between qualifying trading and non-trading profits. Where the company’s restricted carried-forward losses are comprised entirely of relevant deductions (CTM05020), it can use a simpler calculation.

If the company’s deductions allowance is equal to or greater than its qualifying profits, then it does not need to take any further steps to calculate its relevant maxima. In these circumstances, the deductions allowance will cover the full amount of the company’s qualifying profits, and so the relief the company can obtain for restricted carried-forward losses will not be limited by the loss restriction.

Allocating the deductions allowance

Where a company’s restricted carried-forward losses include streamed losses (CTM05020), it will need to allocate its deductions allowance between its trading and non-trading profits.

The company has free choice in how it allocates its deductions allowance. For example, a company with £40 million qualifying trading profits, £60 million qualifying non-trading profits and a £5 million deductions allowance for its 12 month accounting period could:

  • Allocate the whole of the deductions allowance to its trading profits, giving £5 million trading profits deductions allowance and nil non-trading profits deductions allowance,
  • Allocate the whole of the deductions allowance to its non-trading profits, giving nil trading profits deductions allowance and £5 million non-trading profits deductions allowance,
  • Allocate a portion of the deductions allowance to its trading profits, and the remaining portion to its non-trading profits.

The company cannot allocate a greater amount of deductions allowance than it has to begin with (CTA10/S269ZB(8) and CTA10/S269ZC(6)). That is, the sum of the company’s trading profits deductions allowance and its non-trading profits deductions allowance cannot exceed the total amount of the company’s deductions allowance, as given at CTA10/S269ZR (for a company that is in a group) or S269ZW (for a company not in a group) (CTM05130).

Relevant trading profits

CTA10/S269ZF(1)

The relevant trading profits are the qualifying trading profits minus the allocated trading profits deductions allowance.

If this gives a result less than nil, the relevant trading profits are nil.

Relevant non-trading profits

CTA10/S269ZF(2)

The relevant non-trading profits are the qualifying non-trading profits minus the allocated non-trading profits deductions allowance.

If this gives a result less than nil, the relevant non-trading profits are nil.

Relevant profits

CTA10/S269ZFA

A company’s relevant profits are calculated by deducting the company’s deductions allowance for the accounting period from the company’s qualifying profits (CTM05070) for the accounting period.

This applies to all companies that are not life insurance companies.

CTA10/S269ZFB

For life insurance companies, the relevant profits are the sum of the relevant trading profits plus the shareholder’s share of the BLAGAB I-E profits as determined by S103 FA 2012 and the relevant non-trading profits minus the company’s deduction allowance for the accounting period.

Companies with no streamed losses carried forward

Companies do not need to calculate relevant trading and non-trading profits separately if their restricted losses carried forward do not include any streamed losses, but are comprised entirely of relevant deductions (CTM05020).

In accordance with the legislation, the relevant profits are equal to the sum of the relevant trading profits and relevant non-trading profits. However, where the company does not need to calculate relevant trading and non-trading profits separately, it can find its relevant profits by deducting its overall deductions allowance from the total amount of its qualifying profits.

If this gives a negative result, the company’s relevant profits are nil. As set out above, in these circumstances, the company will not need to take any further steps to calculate its relevant maxima (CTM05090).