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HMRC internal manual

Company Taxation Manual

HM Revenue & Customs
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Corporation Tax: company reconstructions: relevant liabilities restriction - introduction


The relevant liabilities restriction at CTA10/S945 disallows CTA10/S45 carry forward losses otherwise available to a CTA10/S940A successor company. Broadly speaking, the losses disallowed equate to the amount of the debts the predecessor company is not able to pay.

It is fairly common, especially in receivership cases, for the creditors of the business not to be transferred with the trade. These creditors are then left stranded in the predecessor company, with little or no chance of being paid.

The restriction is calculated as follows:

  1. add up the liabilities, except share capital and reserves, kept by the predecessor,
  2. deduct the value of the assets kept by the predecessor,
  3. deduct the sale consideration given for the transfer.

If the result is a positive sum, that is the amount of the relevant liabilities restriction. Losses up to and including that amount are then disallowed (any losses in excess of that sum being allowed).

If the result is a negative sum there is no disallowance.

There is a more detailed guidance relating to the restriction at CTM06260 and CTM06270.

Note also that:

  • CTA10/S945 restricts the allowance of losses on transfer to the successor company. Such disallowed amounts do not then revert to the predecessor - they are extinguished.
  • CTA10/S945 refers only to losses brought forward under CTA10/S45. The restriction does not apply to the computation of capital allowances and balancing charges under CTA10/S948.