Loss reform – Corporation tax

Carried forward losses can now by surrendered via Group relief

Current law

Carried-forward losses can only be used by the company that incurred the loss, and not used in other companies in a group. Additionally, certain losses can only be set against certain types of income, for example trading losses can only be used against trading profits.

 

New Law

Losses arising after 1st April 2017 can be set off against own and group company profits. Type of income restriction is also removed.

There is a new loss restriction i.e. only 50% of the carried forward losses can be relived. Don’t worry there is an annual threshold of £5 million for each standalone company or group, ensuring 99% of companies are unaffected by the restriction.

 

Additional notes:

  1. Capital losses not effected by these new rules.
  2. Losses expire when trade closes.
  3. A company can only surrender losses under group relief after its has used its own carried forward losses against its current year’s profit to the full extent.
  4. Similarly, company claiming losses under group relief has to first exhaust its own carried forwarded losses before claiming any under group relief.
  5. Group Allowance allocation statement is also required.

 

Source:

  1. Basic guidance in simple English – see HMRC note.
  2. HMRC has recorded a webinar on this topic – click here. Then Ctrl + F > “reform”.

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