CTM05050 | Corporation tax: restriction on relief for carried-forward losses: trading,non-trading profits and chargeable gains

CTA10/S269ZF (3) Step 3

The restricted carried-forward losses comprise relevant deductions and also streamed losses (CTM05020).

For the restriction on relief for carried-forward losses to apply correctly to streamed losses, the company must divide its modified total profits (CTM05040) as below:

• for periods to 1 April 2020, trading profits and non-trading profits

• for periods from 1 April 2020, trading profits, non-trading income profits and chargeable gains.

The trading profits are all of the profits of any trades carried on by the company. The non-trading profits are all other profits, including chargeable gains. From 1 April 2020, where the company wishes to claim relief for carried forward capital losses, the non-trading profits are divided into non-trading income profits and chargeable gains.

For example, in the accounting period (AP) ending 31 December 2018, Company A has modified total profits of £14m. This is derived from

• Trade 1 profits of £7m,

• Trade 2 profits of £2m,

• Property business profits of £4m, and

• Capital gains of £1m.

The company’s trading profits are its profits of trades 1 and 2, giving £7 million + £2 million = £9 million.

The company’s non-trading profits are all other profits, giving £4 million property business profits + £1 million capital gains = £5 million.

In the above example, for the AP ending 31 December 2021, the non-trading income profits would be £4m and chargeable gains are £1m.

Companies with no streamed losses carried forward

A company will not need to take the step above if its restricted losses do not include any streamed losses, but are comprised entirely of relevant deductions (CTM05020).

This is because all of the relevant deductions, as defined at CTA10/S269ZD (3), can be deducted from the total profits of the company.

Where the company’s restricted losses are comprised entirely of relevant deductions, it can calculate its qualifying and relevant profits and its relevant maximum with reference to its total profits. In these circumstances, the company does not need to divide its modified total profits into the different types of profits. There is an example showing how this works at CTM05250.

Next step

Once modified total profits have been divided into the various types of profits, the next step is to allocate and deduct the in-year reliefs (CTM05060).