SolvedCTM82100 | 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 claim period,
Deductions for capital allowances carried back under CAA01/S260(3) from an AP after the claim period, and
Deductions for non-trade loan relationship deficits carried back under CTA09/S389 or CTA09/S463B 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 CTA10/S4(2), except other claims for group relief for carried-forward losses. The claimant company is treated as having made claims under CTA10/S37 for trading losses and under CAA01/S260(3) 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 two or more claims for group relief for carried-forward losses are made that relate to the same claim period (CTA10/S188DF).
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 | - |
| CTA09/S1219 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 (CTA09/S1219(1A)). |
| CTA09/S1223 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 (CTA10/S188CD). |
| CTA09/S463G 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 (CTA10/S188CD). |
| - | 935,000 | - |
| Group relief for carried-forward losses | (200,000) | Group relief for carried-forward losses under CTA10/S188BB(2) is given before relief for losses carried back. |
| - | 735,000 | - |
| CAA01/S260(3) Excess capital allowances carried back | (20,000) | Group relief for carried forward-losses under CTA10/S188BB(2) 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 (CTA09/S1223(3E)).