Loss planning

Produced by Tolley

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

  • Loss planning
  • Background
  • Reforms to corporation tax loss relief
  • 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
  • More...

Loss planning

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.

Reforms to corporation tax loss relief

The use of carried-forward losses was reformed for accounting periods on or after 1 April 2017 by Finance (No 2) Act 2017. Most types of corporate income 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 previous situation where losses could have quite easily become trapped within individual companies. However, the reforms also introduced a significant restriction on the use of losses carried forward. Under the restriction, almost all types of income losses carried forward will be restricted in their offset to 50% of profits exceeding £5 million.

The main changes were 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.

To accompany the restrictions and relaxations discussed above, a targeted anti-avoidance rule (TAAR) was introduced from 1 April 2017 (although some provisions also apply from 13 July 2017)

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