Recent changes to the corporate loss relief rules now give companies more flexibility in offsetting losses but restrictions have also been introduced.
Trading losses can be offset as follows:
1. A claim can be made against total profits before qualifying charitable donations of the current accounting period. Partial claims are not permitted.
2. Providing a claim is made for (1) above, a further claim can be made for any remaining loss to be carried back one year against total profits before QCDs.
If the above claims are not made, or if they are made and some loss remains, then for trading losses incurred before 1 April 2017 the loss is automatically carried forward against the first available profits of the same trade.
For losses incurred from 1 April 2017, there is now greater flexibility in that losses carried forward can be set against total profits of a later accounting period, in full or in part (or not at all), providing the company continues to trade. A claim has to be made specifying the amount.
A restriction on the amount of profits that can be used for offsetting carried forward losses was introduced on 1 April 2017. The restriction is £5m (pro-rata for short accounting periods) plus 50% of the remaining profit. This is called a “deductions allowance”.
Groups of companies
Trading losses can be surrendered for group relief in coterminous periods.
In addition, for losses incurred from 1 April 2017 carried forward losses can also now be group relieved. The restriction of £5m plus 50% of the remaining profit applies, but the £5m is split between the companies in the group. The group can allocate this as it chooses. This is done through a nominated company and all companies in the group must agree.
Property Losses, Non-trading deficits, and Non-trading losses on intangible fixed assets
Property losses, non-trading deficits, and non-trading losses on intangible fixed assets incurred from 1 April 2017 can all be carried forward and set against total profits of future periods (the restriction where profits exceed £5m mentioned above applies). They can also be carried forward and surrendered for group relief (subject to conditions).