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HMRC internal manual

Corporate Finance Manual

HM Revenue & Customs
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Debt cap: anti-avoidance rules: main rules: Condition B - losses of UK companies

Condition B - corporation tax losses carried forward or back are no more than they would be if the scheme were not implemented

TIOPA10/S307(3)(b) tests whether as a result of the scheme the corporation tax losses of the UK group companies that are capable of being carried back or carried forward are together more than the corporation tax losses that would result from the counterfactual (the most likely alternative to the scheme) being implemented.

If a UK group company makes an allowable corporation tax loss, it will either be able to

  • Offset the loss against its other corporation tax profits.
  • Surrender the losses to other members of the group under the group relief provision - in this case the test at TIOPA10/S307(3)(a) applies.
  • Carry the losses back (in some circumstances) or carry the loss forward - in this case the test at TIOPA10/S307(3)(b) applies.

In the same way that the test in TIOPA10/S307(3)(a) applies to all the UK group companies in a group, the test in TIOPA10/S307(3)(b) incorporates all the UK group companies. TIOPA10/S310 explains exactly what losses are taken into account in applying the test. It is an exhaustive list of losses (including capital losses) that can be carried forward or, in certain cases, carried back.

The rule in TIOPA10/S307(5) that time apportions profits or losses applies as well to the test in TIOPA10/S307(3)(b). Consider a group which prepares its accounts each year to 31 December. A UK member of the group prepares accounts to 31 March, so that two of its accounting periods fall partly in the relevant period being tested under TIOPA10/S307(3). The group company has losses of £12 million for its accounting period ended 31 March 2012 and profits of £15 million for its accounting period ended 31 March 2013. The losses of the first period are carried forward and relieved against the profits of the second period. In applying S307(5), losses that are taken into account under TIOPA10/S307(3)(a) because they have reduced the corporation tax profits of the second period are not also treated as carried forward amounts of the first period.

A loss made by a company that has been offset against its other corporation tax profits of the same period, or surrendered by way of group relief is excluded from being a carried forward or carried back amount.


The sole effect of a scheme is to increase the corporation tax profits of UK group company A by £1 million, but also to increase the losses of UK group company B by £1 million. Company B surrenders £1 million losses to UK group company C as group relief. Company B’s loss is therefore taken into account under TIOPA10/S307(3)(a) and is not tested again under TIOPA10/S307(3)(b). This means that neither leg of TIOPA10/S307(3) is satisfied: the aggregate corporation tax profits of the UK members of the group are not decreased, nor is there an increase in the losses capable of being carried forward or back. Condition B is not met. Even if conditions A and C are met, the scheme will not be affected by the anti-avoidance rules. However, if company B chooses not to surrender its loss, but instead carries it forward (or back), the test at TIOPA10/S307(3)(b) is met and so condition B is met and so the anti-avoidance rules might apply.