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HMRC internal manual

Corporate Finance Manual

Loan relationships: non-trading deficits: claims for set-off against profits of an earlier period

Claim to carry back deficit to previous accounting periods

The company can claim under CTA09/S459(1)(b) to carry back its non-trading deficit to the preceding 12-month period. The conditions for a claim are set out in CTA09/S462.

The deficit is set against non-trading profits that are otherwise unrelieved. These non-trading profits can arise from loan relationships or derivative contracts.

If there is more than one accounting period, the later period gets relief before the earlier period. If an accounting period begins before the start of this 12-month period, the profits to be relieved are apportioned. These rules, in CTA09/S462(4), work in the same way as for trading losses carried back - see CTM90600 

Although the legislation refers to a claim to ‘all or part’ of the deficit, CTA09/S462(2) specifies that the claim must be the smaller of

  • the profits available for relief
  • the total deficit (to the extent it hasn’t already been surrendered as group relief), less any amounts claimed under CTA09/S459(1)(a) to set against profits of the same period.

Interaction with other reliefs

The profit available for relief is the profits arising from loan relationships and derivative contracts, after any amounts claimed that relate to

  • losses or deficits from any period before the deficit period - or treated as coming from an earlier period
  • charges for trade purposes under ICTA88/S338 before 24 July 2002
  • trading losses set against profits of the same or preceding year under ICTA88/S393A
  • deficits of the claim period.

If the company is an investment company, the following reliefs also get priority. Any

  • deduction for capital allowances
  • deduction for management expenses under CTA09/S1219
  • relief for business charges under ICTA88/S337 paid before 16 March 2005.

This order of set-off is given by CTA09/S463(5).

See CFM32080 for an example.