Claims / reliefs: loss and non-trading deficits carry-back: introduction
This guidance is mainly for staff in responsible offices. Staff in Debt Management and Banking (DMB) offices may be interested in some of the information and examples.
The information applies to both Corporation Tax Self Assessment and CT Pay and File APs.
The legislation on trade losses is in Chapter 2 of CTA 2010 at s37.
The legislation is in Chapter 16 CTA 2009, at s456 - s463.
Legislation restricts the carry back of companies’ trading losses and non-trading deficits dealt with under the loan relationship rules to one year. A three year carry back is allowed for trading losses incurred in the final year of trading.
In general, a trading loss carried back to an AP falling wholly within the previous 12 months has no interest consequences for the receiving AP and therefore needs no special treatment in COTAX because the loss of the donating AP takes the interest effective date (EDP) of the recipient AP.
The only exception to this is if you are changing the rate at which the tax is charged; see COM50113 for further guidance.
A trading loss carried back to an AP falling beyond the previous 12 months does have interest consequences.
For APs ending after 30 September 1993:
- subsections (6) of S87A TMA 1970 and (7A) of S826 ICTA 1988 deal with the interest provisions when there is a carry-back of trade losses to an AP ending more than 12 months earlier than the AP in which the losses arise
- subsections (4A) of S87A TMA 1970 and (7C) of S826 ICTA 1988 deal with the interest provisions relating to the carry-back of non-trading deficits.
The effect of the provisions is to:
- charge interest on any unpaid liability that is satisfied by the carry-back for the period up to the CT due date for the AP in which the loss is incurred
- deny repayment interest on any overpayment caused by the carry-back for any period prior to the CT due date for the AP in which the loss is incurred.
Loss Reform Relaxation and Restriction
At the March 2016 budget the Chancellor announced that HM Government would reform the rules governing certain corporate losses carried forward from earlier periods.
The measure will have two effects for Losses arising:
- Companies with profits exceeding £5m are only able to use their carried-forward losses against 50% of profits after deduction of the allowance. Where the company is a member of a group, the £5m is shared amongst companies in the group
- Losses arising from 1 April 2017 when carried forward will have increased flexibility and can be set against the total taxable profits of a company and its group members (‘loss relaxation’), subject to the above restriction.
Carry a trading loss forward
Trading losses that the company has not used in any other way can be offset against profits in future accounting periods, so long as the trade continues.
Trading losses are carried forward and set against profits of the same trade of the next accounting period for losses made in accounting periods ending before 1 April 2017. Further guidance can be found in CTM04100.
The company doesn’t have to make any claim for this to happen as it’s done automatically if they fill in their Company Tax Return.
For accounting periods from 1 April 2017 the way trading losses are set off will depend on when they arise.
Trading Losses that arise up to 31 March 2017
These losses are carried forward and set against profits of the same trade of the next accounting period. A claim isn’t needed and the set off is done automatically. If the company doesn’t want the losses set off, they can make a claim for these to be carried forward and set against trading profits of the following period instead.
The claims must be made within 2 years of the end of the accounting period for which no relief is to be given. The claim should normally be made by submitting an amended tax return.
Trading Losses that arise from 1 April 2017
These losses are carried forward. In most cases they can be set against total profits of the company, or in certain circumstances, against total profits of a group company.
The company needs to make a claim for the relief within 2 years of the end of the accounting period in which the losses are to be set off. The claim should normally be made by amending the company tax return.
COTAX can calculate the interest consequences of a carry- back automatically, taking account of these rules, except where the following apply.
- A repayment or reallocation has previously been made for the AP as a result of a carry-back.
- The carry-back claim results in the displacement of another relief or set-off that would have been given if the claim had not been made. See COM50080 for more information.
- The amount of the carry-back is subsequently amended.
- The carry-back of a loss or non-trading deficit reduces the rate of liability from the main rate of CT with marginal relief to the small profits rate. See COM50070 for more information.
- There is a loss or a non-trading deficit carry-back and you have overwritten the COTAX calculated marginal relief figure. See COM50070 for more information.
- There is more than one loss or non-trading deficit carried back to the AP and you need to alter the COTAX default order of processing the losses or deficits. See COM50100 for more information.
Caseworkers must sometimes intervene in these exceptional cases because they are responsible for making sure that any interest is correctly calculated and for making any repayments that COTAX will not make automatically. See the references in the list above to relevant parts of COM.
The CT Unit Cumbernauld is responsible for calculating and charging any interest COTAX cannot handle automatically. They often depend on you to pass on relevant information using form CT250(P). See COM50090 for more information.