Restriction of carry forward and carry back of trading losses
Following the extensive changes to the loss carry forward provisions introduced from 1 April 2017, the anti-avoidance rules restricting the offset of trading losses following a change in ownership were tightened up and extended. Consequently, there are now two potential restrictions that need to be considered when offsetting trading losses following a change in ownership of a standalone company.
The legislation sets out the order of priority; only where the first test does not apply should the second test be considered.
There are also restrictions on the offset of trading losses, if after the change in ownership the company acquires an asset from a group company on a no-gain / no-loss basis. Also, after a change in ownership, members of the company’s new group cannot claim group relief for any of the company’s carried-forward pre-acquisition losses in the following five years.
First test: change of ownership ― major change in nature or conduct of trade
Relief for trading losses in a subsequent or previous period is not allowed in the following circumstances:
on or after 1 April 2017, where there is both a change in the ownership of a company and, in any five-year period in which the change occurred (beginning no more than three years before the change in ownership, but after 1 April 2017), there is a major change in the nature or conduct of the company’s trade
prior to 1 April 2017, where there is a change in the ownership of a company and, in any three-year period in which the change occurred, there is a major change in the nature or conduct of the company’s trade, or
where there is a change in the ownership of the company at any time after the scale of the company’s activities has become small or negligible and before any considerable revival
HMRC has confirmed that it will not consider that a trade has become