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HMRC internal manual

Corporate Finance Manual

Loan relationships: non-trading deficits: claims for set-off against profits of the same period

Claim to set deficit against profits of the same period

The conditions for a claim under CTA09/S459(1)(a) are set out in CTA09/S461. The claim can only include the non-trading deficit of the current period - it can’t be supplemented by amounts brought forward.

The company can set all or part of the current year’s deficit against profits of any description, whether trading or non-trading, but it must identify those profits. The ability to claim only part of the deficit allows companies to maximise their double tax relief (see the example below). However, the claim can’t extend to ‘ring-fenced profits’ for oil companies (CTA09/S461(7)).

Interaction with other reliefs

CTA09/S461 gives the order of set-off. The non-trading deficit is set against the profits of the period

  • after relief for trading losses carried forward, but
  • before relief for

    • property losses set against property income (ICTA88/S392A(1)), or trade losses set against trade profits of the same period or carried back from a later period (ICTA88/S393A (1)), or
    • non-trading deficit carried back from a later period (CTA09/S459(6)(b)).

Set-off in the year: example

A UK company has the following income and expenditure for an accounting period.

UK trading income £400,000
Overseas dividend £200,000 (foreign tax paid £36,000)
Non-trading deficit £500,000 from loan relationships

In order to maintain maximum foreign tax credit relief the company claims under CTA09/S459(1)(a) (2)(a) for £400,000 of the deficit to be set against the trading profits and for a further £80,000 of the deficit to be set against the overseas dividend as follows.

  Trade profits Dividend Total
  400,000 200,000 600,000
Part deficit claim (of year) (400,000) (80,000) (480,000)
Profits   120,000 120,000
CT@30%     36,000
Tax credit relief     36,000
CT payable     Nil

The remaining £20,000 (£500,000 - £480,000) of the deficit is available to be carried back under CTA09/S459(1)(b). If the company doesn’t make such a claim, it will be carried forward by default under CTA09/S457(1).