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HMRC internal manual

Company Taxation Manual

Corporation Tax: loss buying: five year period ends mid-accounting period

CTA10/S676AE, S676CG, S676EB-EC

The restrictions at CTA10/PART14/CH2A, CH2C and CH2E affect the relief a company can obtain against profits of the five year period following a change in ownership.

The company whose ownership has changed therefore needs to know whether profits fall within that period.

In addition, Chapters 2C and 2E affect relief available to companies in the same group for the purposes of group relief for carried-forward losses as the company whose ownership has changed. This means that any company in the same group may need to know whether profits fall within the five year period.

This could be straightforward if a company has an accounting period that ends on exactly the same date as the five year period. However, a company may have an accounting period that begins before and ends after this date. In these circumstances, the profits of that accounting period should be apportioned to determine the amounts affected by the restriction.

The apportionment should generally be made on a time basis, to reflect the proportion of the accounting period that falls within five years of the change in ownership. Thus if 272 days of a 365 accounting period fall within those five years, 272/365 of the profits will be affected by the restriction.

However, if this method of apportionment produces an unjust or unreasonable result, another method should be used that will produce a just and reasonable result.(S676AE(3)-(5), s676CG(3)-(5), s676EB(5)-(7), s676EC(7)-(9).)

Restrictions involving the transfer of an asset

CTA10/PART14/CH2B andCH2D also affect relief for the five years following a change in ownership. However, these chapters specifically restrict relief against gains on the disposal of certain assets. This means that whether or not relief is restricted will depend on whether the disposal date falls within or outside the five year period. Apportionment along the lines set out above will not be necessary.