CTM05120 | Corporation tax: restriction on relief for carried-forward losses: deductions allowance general

CTA10/S269ZR to S269ZZB

Each company or, if a company is a member of a group (CTM05160), the group, will be entitled to a deductions allowance.

The deductions allowance applies only to determine the amount of carried-forward losses a company may use. It is not a tax-free allowance and does not itself provide any relief from tax. Rather, it enables companies to gain greater use of their carried-forward losses than would otherwise be possible in accordance with the restriction.

The amount of the deductions allowance is included in the computation of the relevant maxima (CTM05090). The relevant maxima determine the amount of profits against which restricted carried-forward losses may be set.

A company’s relevant maximum for total profits, for example, is 50 per cent of the company’s relevant profits (CTM05080) plus the total amount of its deductions allowance.

It follows that if a company has profits that are lower than the amount of the deductions allowance, carried-forward losses may be set against those profits without restriction.

Where a company’s restricted carried-forward losses include streamed losses (CTM05020), it will need to calculate relevant maxima for trading and non-trading profits and (from 1 April 2020) chargeable gains. This involves allocating the deductions allowance to give the trading profits deductions allowance, non-trading income profits deductions allowance and chargeable gains deductions allowance. The company may choose how its deductions allowance should be allocated between trading profits, non-trading income profits and chargeable gains (CTA10/S269ZB (7), CTA10/S269ZBA (5) and CTA10/S269ZC (5)) (CTM05080).

A company with streamed restricted carried-forward losses should show how it has allocated its deductions allowance between its trading profts, non-trading income profits and chargeable gains as part of its return, usually in its tax computations.

The amount of a company’s deductions allowance depends on the length of the company’s accounting period and whether the company is:

• not a member of a group for any part of the accounting period (CTM05130), or

• a member of a group for the whole of an accounting period (CTM05140), or

• a member of a group for part of the accounting period (CTM05150).

A company should specify the amount of its deductions allowance in its return (CTA10/S269ZZ).