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OT21057 | Corporation Tax Ring Fence: Losses and Group Relief: Losses Carried Forward: Restricted relief

From HM Revenue & Customs · Oil Taxation Manual

The loss reform rules restrict the amount of certain carried forward losses that can be deducted from a company’s trading profits and its total profits, to the appropriate share of its deduction allowance (CTM05120) plus 50% of the remaining profits.

In general, ring fence profits and losses are carved out of the restriction. As a result, most losses of a ring fence trade, whether they are decommissioning or non-decommissioning losses, can continue to be carried forward and set against subsequent profits of the ring fence trade, without restriction.

The exception to this is when a non-decommissioning loss is deducted from:

  • profits of a related activity under CTA10/S304(5) (see below)

  • a company’s total profits under CTA10/S303C (OT20156C)

  • total profits of a group company as group relief for carried forward losses (CTA10/Part5A)

Further guidance on the restriction of relief for carried-forward losses is at CTM04800.

Profits from related activities

Under the pre 1 April 2017 rules, companies were able to set a loss incurred in a ring fence trade against profits from ‘related activities’. Related activities are those activities which would have been considered as being part of the same trade as the oil-related activities, were it not for the operation of CTA10/S279, which treats oil-related activities as a separate trade. This treatment remains available for post1 April 2017 losses, both decommissioning and non-decommissioning. Where the ring fence loss is a decommissioning loss carried forward under CTA10/S45B and is set against profits from non-ring fence ‘related activities’, the amount of the loss that can be set against those related activities is not subject to the restriction. However, where a non-decommissioning loss is set against non-ring fence ‘related activities’, the 50% restriction applies.

Companies will need to determine the share of their group deductions allowance that is allocated to their (non-ring fence) trading profits for the period, to allow them to calculate the amount of loss that can be set off (CTM05120).