CTM04570 | Corporation Tax: trading losses - relief against total profits: evidence of loss

CTA10/S39

The amount of a loss incurred in a trade in any accounting period is computed in the same way as trading income from the trade in that period would have been computed (CTM04005). In theory the usual accounts and computations should be supplied as evidence in support of a loss.

However, when a company collapses, accounts are often not prepared for the final period of trading, and yet it will often be clear that the company has made substantial losses for this final period. The question arises whether and to what extent these losses can be carried back to previous years under CTA10/S39.

Production of accounts should not be insisted on where there is no doubt that claimed losses would be significantly less than the losses actually suffered by the company, even after any possible adjustment of the computations for capital, disallowable expenditure, balancing charges, and so forth.

The evidence needed that losses claimed are available will depend on the particular facts of each case. No hard and fast rules can be laid down, and many factors may relevant. These might include, not only results seemingly disclosed by management accounts or statements of affairs, but also compliance history and any other available information about a company's activities.

At one extreme there will be cases where a company collapses with losses in the millions of which only the odd few thousand are claimed. Here it is likely to be reasonable to allow the claim in full.

At the other extreme all the losses disclosed by unaudited or management accounts may be claimed. Here it is unlikely that such losses may be regarded as available unless audited accounts are produced.