INTM167340 - UK residents with foreign income or gains: corporation tax: Losses

CTA10/S45 provides that a loss incurred in a trade can be carried forward and set off against profits of a subsequent year. If the trade is carried on partly in the UK and partly abroad, either in one or in several foreign branches, it is not necessary to calculate how much of the loss relates to the trade carried on in the UK and how much to the trade carried on in each foreign branch. The loss is carried forward in one sum. If the profits of the subsequent period include profits from those parts of the trade carried on abroad which have borne foreign taxes, then, for tax credit relief purposes, set off the loss first against the profits of the part of the trade carried on in the UK and any balance against the profits of the foreign branches so that the maximum tax credit relief is given.

Example

In its accounting period ended 31 March 2010 a company had the following profits chargeable to Corporation Tax:

-	£	-
UK trading profits	300,000	-
Foreign trading profits (Country A)	150,000	(Foreign tax 37,333)
Foreign trading profits (Country B)	50,000	(Foreign tax 10,000)

It has trading losses brought forward under CTA10/S45 amounting to 325,000.

-	UK trade	Country A trade	Country B trade	Total
-	£	£	£	£
Profits	300,000	150,000	50,000	500,000
less loss b/f	(300,000)	(16,667)	(8,333)	(325,000)
Subtotal	Nil	133,333	41,667	175,000
Corporation Tax @ 28%	Nil	37,333	11,667	49,000
Less tax credit relief	-	(37,333)	(10,000)	(47,333)
Net Corporation Tax payable	Nil	Nil	1,667	1,667