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HMRC internal manual

Company Taxation Manual

Corporation Tax: company reconstructions: apportionment of profits and losses


Computing the profits and losses of notional trades

The loss streaming rules (CTM06120) require a computation of the profits and losses of separate notional trades.

The losses and profits of those notional trades are worked out using normal taxation principles. CTA10/S952(1) simply provides that ‘just and reasonable apportionments are to be made of receipts, expenses, assets and liabilities’. In some cases the apportionment can be made from branch or management accounts. Where there are no such accounts, apportionment should be made on any basis that produces a sensible result, for example apportionment by:

  • time,
  • sales,
  • square footage, or
  • production costs.

Apportionment affecting two or more companies

Apportionment of profits or losses under CTA10/S952 (1) can affect two or more companies, typically on the division of losses on the split of a trade. The effect of CTA10/S952 (2) and (3) is to ensure the same basis applies to all the affected companies.

In the event of a dispute all the companies concerned should be consulted and made aware of their opportunity to be heard by, or to make written representations to, the Tribunal.

The Tribunal determines an apportionment dispute as if it were an appeal.