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HMRC internal manual

Company Taxation Manual

Corporation Tax: loss-buying: accounting period in which change of ownership occurs

CTA10/S674 (2)

When CTA10/S673 applies, the company’s carried-forward trading losses are extinguished as at the date of change in ownership. Where this change takes place part way through an accounting period, CTA10/S674 (3) treats the part ending with the change in ownership and the part after it as two separate accounting periods.

The profits or losses of the true accounting period are apportioned to the two parts.

CTA10/S674 (3) says this apportionment is to be done on a time basis, unless it appears that method would be unreasonable or unjust for either the company or HMRC. Time apportionment produces a satisfactory result in most cases. But where it does not, any other method that gives a just and reasonable result may be used.

A different basis may be used where, for example, a particularly large loss was made in the year of change and the new owner was able to inject substantial profits before the accounts date. In this case, time apportionment would allow the loss-buyer to gain some benefit from losses that were incurred in a period immediately before the change in ownership.

On the other hand, a special basis of apportionment might be fairer to a company where profits of the year of change arose mainly before the change in ownership.