Non-trading deficits on loan relationships

By Tolley

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

  • Non-trading deficits on loan relationships
  • Overview of non-trading deficits
  • Relief for NTDs against current year profits
  • Carry back of non-trading deficits against non-trading profits of an earlier period
  • Carry forward of NTDs to future accounting periods
  • Surrender by way of group relief
  • Carried forward and surrender as group relief
  • Change in ownership provisions and companies with investment business

Overview of non-trading deficits

When a company’s debits on its non-trading loan relationships and derivative contracts in an accounting period exceed the credits on its non-trading loan relationships and derivative contracts in the same period (the deficit period), the surplus is a special category of loss which is known as a non-trading deficit (NTD).

This guidance note considers how companies can utilise their NTDs.

For guidance on determining a company’s debits and credits from loan relationships and whether these are trading or non-trading, see the Taxation of loan relationships guidance note.

Changes to non-trading deficits carried forward from April 2017

The reform of corporate losses within Finance (No 2) Act 2017 included a mixture of relaxations to the use of losses within the previous regime before 1 April 2017, and also a major restriction (50% for most companies) on the amount of profits that can be covered by the offset of most losses carried forward after 1 April 2017. For further details of the restriction on losses carried forward, see the Carried-forward losses restriction guidance note.

The rules applied with effect from 1 April 2017 and accounting periods straddling 1 April 2017 were treated as two separate accounting periods for the purposes of applying the rules.

HMRC issued guidance on 31 July 2017, which can be found here . This is a first tranche of guidance, focusing on the core rules and other aspects where guidance has been specifically requested. A second tranche of guidance was issued on 6 November 2017 and can be found here . The second tranche of guidance covers group relief for carried-forward losses and the relaxation of carried-forward non-trade losses. Further draft guidance on commencement provisions  was issued on 7 December 2017.

Details of the changes in the utilisation of post April 2017 NTDs carried forward are detailed below.

More on Corporate debt: