CTM82100 | Reform of Corporation Tax loss relief: Group relief for carried-forward losses: Order of relief
From HM Revenue & Customs · Company Taxation Manual
Group relief for carried-forward losses is given as a deduction from the claimant company’s total profits.
The deduction for group relief for carried-forward losses must be made before:
Deductions for trading losses carried back under s37(3)(b) from an accounting period (AP) after the ,
Deductions for capital allowances carried back under from an AP after the claim period, and
Deductions for non-trade loan relationship deficits carried back under or from a deficit period after the claim period.
The deduction for group relief for carried-forward losses must be made after deductions that are set against total profits under Step 2 of , except other claims for group relief for carried-forward losses. The claimant company is treated as having made claims under for trading losses and under for excess capital allowances to be set against total profits of the claim period, regardless of whether they have done so. For example, if a company has trading losses in the claim period and does not wish to make a claim under s37 to set these against total profits of the same period, for the purposes of computing the amount of any group relief for carried-forward losses, it will be treated as though it had actually made that claim.
There are rules for ordering claims when for group relief for carried-forward losses are made that relate to the same claim period ().
Example
Company Y has £1,000,000 of total profits and £20,000 of management expenses for the AP 1 April 2019 to 31 March 2020. It also has management expenses of £25,000 and a non-trading loan relationship deficit of £20,000 for AP 1 April 2018 to 31 March 2019, which it carried forward. In addition, it has excess capital allowances of £20,000 carried back from the following 12 month AP ending 31 March 2021. The company makes a claim for group relief for carried-forward losses which is limited to £200,000.
It must relieve these losses in the following order:
| Relief | £ | Notes |
|---|---|---|
| Total profits | 1,000,000 | - |
| Management, expenses of the same AP | (20,000) | Relief for management expenses of the AP is given as a deduction from total profits but must be given before any other such deduction (). |
| Management expenses carried forward* | (25,000) | Company Y can {claim} for carried-forward losses and deductions available for relief against total profits to be utilised to the extent and in the order it chooses, subject to the {general restriction on relief for carried-forward losses}. However, to calculate the amount of profits the company can relieve under Part 5A, the company is treated as if it had used these losses to the full extent possible (). |
| Non-trading loan relationship deficit carried forward | (20,000) | Company Y can {claim} for carried-forward losses and deductions available for relief against total profits to be utilised to the extent and in the order it chooses, subject to the {general restriction on relief for carried-forward losses}. However, to calculate the amount of profits the company can relieve under Part 5A, the company is treated as if it had used these losses to the full extent possible (). |
| - | 935,000 | - |
| Group relief for carried-forward losses | (200,000) | Group relief for carried-forward losses under is given before relief for losses carried back. |
| - | 735,000 | - |
| Excess capital allowances carried back | (20,000) | Group relief for carried forward-losses under is given before excess capital allowances carried back. |
| Profits chargeable to corporation tax | 715,000 | - |
*In contrast to management expenses arising in the accounting period, management expenses carried forward do not need to be set against total profits before other deductions ().