CTM04910 | Corporation Tax: CT loss reform: commencement: example 1: company makes overall loss in the AP straddling 1 April 2017

Before reading this example, refresh the note concerning examples at CTM04900, which sets out the key assumptions made.

Introduction

Losses and amounts incurred in the straddling period and carried forward to subsequent periods will need to be apportioned to determine pre- and from 1 April 2017 amounts. This applies in relation to losses within the scope of the amendments in F(2)A17/SCH4, such as trading losses, non-trading loan relationship deficits (NTLRDs), non-trading losses on intangible fixed assets (NTLIFAs), management expenses and UK property business losses. It does not apply to losses such as allowable capital losses that are outside the scope of the amendments. Capital losses are within the scope of the restriction only from 1 April 2020.

Where a company makes an overall loss for the straddling period and that loss is available to carry forward (after deduction of current year losses from total profits and group relief surrendered), apportionment of that loss is necessary (either on a time basis or other just and reasonable basis) to determine how much is to be treated as arising before 1 April 2017 and how much on or after that date.

Example

In its accounting period from 1 January 2017 to 31 December 2017, Company A has:

• Property business profits of £800,000

• Trading losses of £1,000,000.

£800,000 of the trading losses are deducted from the profits, leaving an excess of £200,000 available to carry forward.

Apportionment of the £200,000 is necessary to establish how much of the amount carried-forward relates to the period before 1 April 2017 and how much on or after.

Apportioning on a time basis, the amounts are treated as available to carry forward from the following periods:

Apportionment of the gross amount of trading losses of £1,000,000 is not necessary because £800,000 of these are set against the profits of the period, and the amendments in F(2)A17/SCH4 do not apply to current year losses. The amendments, and therefore apportionment, apply only to the carried-forward losses of £200,000.