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HMRC internal manual

Company Taxation Manual

From
HM Revenue & Customs
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Corporation Tax: loss-buying: capital allowances

CTA10/S675

The cancellation of CTA10/S45 carry forward losses by CTA10/S674 (2) does not affect underlying computations of capital allowances. This is because the trade itself does not cease.

This means that a company which, at the time of the change of ownership, owns assets on which capital allowances have been given can effectively be penalised twice by:

  • disallowance of any unused capital allowances included in the losses disallowed,

and

  • a balancing charge when the assets are disposed of.

CTA10/S675 and S687 address this problem. Where an extinguished loss includes unallowed capital allowances, those capital allowances are treated as not having been given when calculating the balancing charges on an asset owned at the date of the change in ownership and sold later.

CTA10/S675 and S687 contain an identification rule. Where, in any period both losses and capital allowances were available for setting against profits, capital allowances are treated as set-off before other losses.