HMRC is seeking comments on the first tranche of draft guidance covering legislation to reform corporation tax loss relief, which is included in the Finance Bill to be introduced after the summer recess
The main aim of the changes is to provide for a more flexible loss relief regime by allowing losses arising from 1 April 2017 to be set against profits of different activities within a company and against profits across a group. They also restrict the amount of profit that can offset through carried-forward losses to 50%, subject to a group-wide allowance of £5m.
The loss relaxation will mean that losses arising from 1 April 2017, when carried forward, can be set more flexibility against the total taxable profits, rather than particular types of income, of a company and its group members.
Both the loss restriction and loss relaxation will apply to trading losses, non-trading deficits on loan relationships, management expenses, UK property losses, and non-trading losses on intangible fixed assets.
Whilst pre-April 2017 trading losses will not be relaxed, companies will have the flexibility to choose whether or not to use pre-April 2017 trading losses before other available losses.
If a company’s trade ceases and the company has unused carried-forward losses of that trade, those losses can be set without restriction against profits arising in the final 36 months of the trade. Post-April 2017 losses will be able to be set against total profits, whilst pre-2017 losses trading losses will only be able to be set against profits of the same trade. The profits that losses can be carried-back to will be limited to those generated from 1 April 2017.
The legislation contains loss buying rules which will mean that where a company or group of companies is acquired, any post-April 2017 carried-forward losses that arose before the company or group’s acquisition will not be available to the purchaser’s group for five years.
The legislation also contains a targeted anti-avoidance rule which will prevent any arrangements being entered into with a main purpose of obtaining a benefit from the loss reform rules.
HMRC says the guidance published now focuses on the core rules and other aspects where guidance has been specifically requested. Amended and further draft guidance will be issued in due course. The deadline for comments is 25 September.
Reform of Corporation Tax loss draft guidance is here.