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HMRC internal manual

International Manual

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