Companies using brought forward tax losses need to fulfil new administrative requirements.
Draft guidance on the administrative requirements for the restriction of Corporation Tax loss relief was published at the tail-end of 2018. This followed an amendment to the rules in 2017 brought about by Finance (No 2) Act 2017, by way of which new flexibilities and restrictions were introduced. Any UK company or group using brought forward losses needs to fulfil new administrative requirements (even where less than £5 million of brought forward losses are being utilised).
Who do the administrative requirements apply to?
The rules apply to companies that utilise brought forward losses in accounting periods ending after 1 April 2017. The administrative requirements are relevant even where the 50 percent restriction doesn’t apply (i.e. brought forward losses utilised are less than £5 million).
Who do they not apply to?
Where no members of a group are utilising carried forward losses, the group will not have to fulfil any administrative requirements relating to the loss restriction rules.
What is required?
There is a requirement for a standalone company to specify the amount of the company’s deductions allowance for the period in its tax return.
These requirements apply where there are at least two UK companies in the group.
The deduction allowance for groups can be allocated to any company or companies in the group. This is done through a nominated company. The maximum amount of the allowance that is available to be shared amongst all group companies is £5 million (reduced proportionally where the accounting period is less than 12 months). Each company in the group which is using the deductions allowance will need to specify the amount in its tax return.
In addition, the group will need to appoint a nominated company and prepare and submit a group allowance allocation statement (GAAS).
How is a nominated company appointed?
The group allowance nomination must be made by all the companies in the group that are within the charge to corporation tax and must state the date the nomination takes effect (which can be before the date the nomination is made).
How is a GAAS prepared and who submits it?
The nominated company will have to submit a GAAS to HMRC showing the list of companies within the charge to corporation tax and to which an amount of group deductions allowance will be allocated (i.e. one does not need to show all the UK group entities here) in the nominees' accounting period and will be responsible for allocating the group deductions allowance to those companies. This can be submitted as a PDF with the nominated company’s tax return. Please note that the signed copy needs to be submitted.
When are these documents due?
As per the legislation, in most cases, the GAAS must be received by HMRC before the first anniversary of the filing date for the nominated company’s return for the accounting period to which the GAAS relates, or a later period if HMRC allow it. However, we would recommend that the GAAS is submitted when submitting the corporation tax return for the period. This will also ensure that it is not inadvertently forgotten.
HMRC draft guidance issued in December 2018 is available at this link.
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