Reform of CT Loss Relief | KPMG | UK
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Reform of CT Loss Relief

Reform of CT Loss Relief

New restriction on use of carried forward losses. Most post-1 April 2017 losses no longer streamed and can be surrendered as group relief.


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Summary of proposal

This is a summary of the key points of the rules as they apply to companies in general.  Special provisions apply to banks, life insurance companies, certain creative industries and oil & gas activities which are not covered here.  

  • There will be a new restriction on the amount of profit that can be offset by carried-forward losses.  The use of carried-forward losses against current year profits will be restricted, subject to an annual £5 million allowance.
  • Groups are free to allocate the £5 million allowance as they see fit.  The existing corporation tax (CT) group relief definition of a group applies for these purposes but with extensions allowing groups to be traced through various non-share entities to prevent multiple allowance claims. 
  • Above the £5 million allowance, there will be a 50% restriction in the profits that can be covered by carried-forward losses whether from pre or post 1 April 2017. 
  • There will be greater flexibility over the types of profit that can be relieved by post 1 April 2017 carried forward losses. Most post-1 April 2017 trading losses and non-trade deficits on loan relationships can now be set against total profits.
  • Post 1 April 2017 carried-forward losses can be surrendered as group relief but again subject to the 50% restriction and annual £5 million allowance.  Group relief for carried-forward losses is only available to the extent that the losses cannot be used by the surrendering company.
  • Post 1 April 2017 carried-forward losses can also be surrendered as consortium relief.  Claims by consortium members are capped by reference to the ownership proportion in the period in which the loss arose so losses will need to be tracked. The legislation does not set out how carried-forward losses are to be allocated between consortium members when some have been used by the consortium company itself.
  • The existing loss buying rules will continue to apply but the post change in ownership ‘major change’ watch period is extended to five years.
  • Where the ‘major change’ is to an activity other than that in which the losses originated, new provisions will deny the offset of carried-forward losses (whether in company or by group relief claim) against the ‘affected profits’.  These are the profits which can fairly and reasonably be attributed to activities or other sources of income as a result of which the ‘major change’ has occurred.
  • Joining a CT group relief group will be treated as a change in ownership and pre-acquisition carried-forward losses cannot be surrendered into the new group for five years. There is no restriction on group relief for carried-forward losses within an acquired group nor on the surrender of carried-forward losses by the acquiring group to the acquired group, subject to the major change/affected profits rule above.


Key changes from the draft legislation

The new draft legislation supersedes that published on 26 January 2017 and includes provisions dealing with oil activities, oil contractors and Northern Ireland trading losses. 



The Finance Bill clauses will take effect from 1 April 2017.  For accounting periods spanning this date, there will need to be an apportionment with the old and new rules applying to the profits and losses either side of 1 April.


Our view 

The draft legislation runs to more than 100 pages so for the large businesses that will mainly be affected by these changes the reforms are anything but a simplification.  The drafting contains much duplication and the provisions are not always where they might logically expect to be found so the legislation will prove very challenging for taxpayers to interpret.  Businesses will be grappling with these changes for years to come


For further information please contact:

Iain Kerr

Tel:+44 (0)20 7311 5621



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