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CTM06725 | Corporation Tax: loss buying: change in ownership occurs mid-accounting period

From HM Revenue & Customs · Company Taxation Manual

CTA10/S676AD, S676BB, S676CB, S676DB, S676EB and S676EC)

A change in ownership (CTM06720) may occur after the beginning and before the end of an accounting period (AP) of the company. Where this is the case, the accounting period during which the change occurs should be treated as two separate notional accounting periods.

  • The first notional AP begins with the beginning of the true accounting period and ends on the day of the change in ownership;

  • The second notional AP begins on the day immediately following the change in ownership and ends with the end of the true AP.

The company should apportion any profits, losses and other amounts relating to the true AP between the two notional periods, following the appropriate method set out in legislation (see below).

Amounts apportioned to the first notional period will be treated as arising before the change in ownership for the purposes of the loss buying rules. Losses and debits apportioned to this period will therefore potentially be restricted.

Amounts apportioned to the second notional period will be treated as arising after the change in ownership. The company may therefore be unable to set certain losses against these profits in accordance with one of the restrictions.

The method of apportionment used depends on the restriction that applies.

  • For the purposes of the restriction following a change in the ownershio of a business of a company under CTA10/PART14/CHAPTER2A, the company should apportion amounts in accordance with CTA10/S685 (S676AD).

  • For the purposes of a restriction relating to a transferred asset under CTA10/PART14/CHAPTER2B or CHAPTER2D, the company should apportion amounts in accordance with CTA10/S702 (S676BB and S676DB).

  • For the purposes of the restriction on group relief for carried-forward losses under CTA10/PART14/CHAPTER2C, or for the purposes of the restriction following a transfer of a trade under CTA10/PART14/CHAPTER2E, the company should apportion amounts in a time basis. The apportionment should reflect the respective lengths of the two notional periods.

However, if this produces an unjust or unreasonable result, the company should use another method that will produce a just and reasonable result. (S676CB (5) to (7), S676CC (9) to (10), S676EB (4) and (6) to (7), and S676EC (6) and (8) to (9)).