Canary wharf building reflection

New corporate loss relief rules

Jane MacKay
Canary wharf building reflection

Changes to the corporate loss relief rules from 1 April 2017 will require careful consideration in 2018 by companies and groups with losses to make sure that as much relief for losses as possible is claimed.

Under the old rules carried forward losses could only, broadly, be utilised by the company that incurred the loss with some loss types restricted to certain future income streams.The new rules introduced flexibility to allow losses arising from 1 April 2017 to be carried forward and set against most types of taxable profits of the company, or its group members, irrespective of which activity the losses related to.

There is however, a restriction to this loss utilisation with the amount of taxable profit that is able to be relieved being capped at 50% once a £5 million limit for each group of companies is exceeded. Restrictions on trading and non-trading losses continue to apply to losses generated before 1 April 2017, where trades and investment businesses become small or negligible, and there are also a number of anti-avoidance rules to consider.

The new, increased flexibility of how such losses can be used was a welcome change, and should help to minimise losses being 'trapped' in companies that cannot utilise them. However, the way the rules work is anything but simple. The most recent draft guidance from HMRC was released in November 2017 for comment.

The new rules will especially impact groups with multiple UK entities and will require thorough understanding, and careful planning, to ensure losses are used as efficiently as possible and the related administration is completed accurately and on time.

Recommended action
Given the complexity of the new rules and how the £5 million restriction is applied, UK groups will need to get familiar with how they will impact their group tax position. Businesses should model how the new loss rules affect their business to ensure they understand the impact on future intra group charges, on the tax numbers going into their annual accounts (especially in connection with deferred tax provisions), and on their calculations for tax instalment payment purposes (QIPs). It will also be essential that the correct and most beneficial filing position for loss utilisation is adopted.

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Jane Mackay
Jane Mackay
National Head of Tax
Thames Valley