LAM15360 | Excess expenses, losses and deficits: Loss reform: shock losses: Using shock losses CTA10/S269ZJ

The calculation of relevant profits in CTA10/S269ZB(3) is after adjusting for trading shock losses carried forward and deducted from trading profits under CTA10/S45B. Therefore, trading shock losses can only be deducted up to the amount of the trading profits with any remaining losses being carried forward to the next accounting period.

Non-trading shock losses carried forward and deducted from non-trading profits under CTA09/S463H are excluded from the calculation of relevant profits in CTA10/S269ZC and S269ZD(2)(b)(ii). So non-trading shock losses can be deducted up to amount of non-trading profits with any remaining losses being carried forward to the next accounting period.

Excluding the shock losses from the relevant profits ensures that, where the company uses both shock losses and non-shock losses in an accounting period, the shock tax losses are taken into account in calculating the relevant maximum for the purposes of the loss restriction. This prevents a company reducing 50% of its profits with non-shock losses and then reducing those profits to nil using shock losses. The effect of this rule is that future profits can potentially be reduced to nil with brought forward shock losses.

Shock losses that are carried forward are not a relevant deduction for the purposes of CTA10/S269ZD and therefore they cannot be deducted from total profits (CTA10/S45A(3)(d)).

Shock losses carried forward cannot be surrendered as group relief (see CTM82040).