Loss planning

By Tolley
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The following Corporation Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Loss planning
  • Background
  • Aims and approach
  • Trading losses on or after 1 April 2017
  • Trading losses before 1 April 2017
  • Property business losses on or after 1 April 2017
  • Property business losses before 1 April 2017
  • Overseas income losses
  • Miscellaneous income losses
  • Qualifying charitable donations
  • Capital losses
  • Excess management expenses on or after 1 April 2017
  • Excess management expenses before 1 April 2017
  • Non-trading deficits on or after 1 April 2017
  • Non-trading deficits before 1 April 2017
  • Group / consortium relief
  • Transfer of a trade
  • Change in ownership provisions
  • Corporation tax loss refresh prevention rules

Background

The way in which company losses can be utilised depends on the type of loss, the period in which it arises and the type of profits against which it may be relieved. Whilst on some occasions there may only be one option available for companies using losses, there are often multiple options available and careful planning is required to ensure that losses are used in the most tax-efficient way possible.

This guidance note provides an overview of the rules relating to different types of company losses and includes links to more detailed information.

Further information can also be found in the HMRC company losses toolkit  which includes a checklist and commentary on the mitigation of risks associated with the use of company losses for accounting periods covering financial years 2013/14 to 2016/17.

Reforms to corporation tax loss relief

The legislation on the reform of losses is now included in F(No 2)A 2017, ss 18–19 and Sch 4 which received Royal Assent on 16 November 2017. The most important development in this legislation is the restriction of losses carried forward. Almost all types of income losses carried forward will be restricted in their offset to 50% of profits exceeding £5 million.

The main changes are introduced by CTA 2010, Part 7ZA which deals with ‘Restrictions on deductions in respect of carried-forward losses’, and in CTA 2010, Part 7ZA dealing with ‘Group relief for carried-forward losses’. Other consequential changes to specific loss rules for loan relationships, intangible fixed assets, etc have been effected by amending the original sections of the relevant legislation.

Most losses incurred from 1 April 2017 may be carried forward and utilised against different activities of the same company or another company in the same group. This is a radical departure from the current situation where losses can quite easily become trapped within