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HMRC internal manual

Company Taxation Manual

Corporation Tax: loss buying: major change in the business of a transferred company: affected profits


The restriction applies to profits that arise within five years following the end of the accounting period of the transferred company in which the change in ownership occurs.

However, these profits are only affected if they are related to the major change in the company’s business. To decide this, HMRC look at the activities or other sources of income that have resulted in that change or have partly contributed to bring the change about.

Profits that can fairly and reasonably be attributed to these activities or sources of income are affected by the restriction at CTA10/PART14/CH2A.

For example, if there has been a major change because the company began to carry on a new trade, profits that can fairly and reasonably be attributed to the new trade are affected by the restriction. The company will not be able to set restricted losses, incurred before the change in ownership, against profits of the new trade that arise in the five year period described above.

However, the company may have other profits which do not relate to the major change. For example, the company may make profits in a trade which it has carried on in much the same way both before and after the change in ownership, even though there has been a major change in another of its trades or a part of its business. Chapter 2A does not prevent the company from setting carried forward losses against these unaffected profits.

If the company has an accounting period that begins before and ends after the date of the fifth anniversary, it will need to apportion amounts relating to that period.