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HMRC internal manual

International Manual

Controlled Foreign Companies: Computation of Chargeable Profits and Creditable Tax: Losses in pre-apportionment accounting period

General - ICTA88/SCH24/PARA9

There are special rules which enable trade losses incurred in the six year period preceding the first accounting period for which apportionment falls to be made to be set against the profits of the trade in subsequent periods. If the computation of a company’s chargeable profits for an accounting period prior to that for which the first apportionment is made (the starting period) shows a loss in respect of a trade, a claim can be made under ICTA88/SCH24/PARA9 for that earlier period to be treated as the first apportionment period for the purpose of computing chargeable profits of the starting period and subsequent periods. This enables losses to be brought forward under CTA10/S45. Relief is not available for the purpose of computing chargeable profits for an acceptable distribution policy.

To be valid, a ICTA88/PARA24/PARA9 claim must relate to an accounting period-

  • which precedes the starting period, and
  • which ended less than six years before the beginning of the starting period, and
  • in which the company was not resident in the United Kingdom.

It is not necessary for the company to have been controlled by persons resident in the UK in the pre-apportionment period to which the claim relates.

It should be noted that if there has been a change in the ownership of a company, CTA10/S674 (previously ICTA88/S768) may apply.