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Carried forward trading losses and non-trading loan relationship deficits (NTLRDs) that arise before 1 April 2017 are subject to the restriction, since this applies to restricted carried-forward losses regardless of when they arose (CTM05020). However, they will not be eligible for the relaxation on relief for carried-forward losses arising from 1 April 2017 (CTM04100). The trading losses will therefore only be available for relief against profits of the same trade, and the NTLRDs will only be available for relief against non-trading profits.

Although most post-1 April 2017 trading losses and NTLRDs benefit from the relaxation, in certain circumstances this will not be the case (CTM04115).聽 This may occur for example where a trade or investment business becomes small or negligible.

Where from-1 April 2017 trade losses or NTLRDs do not benefit from the relaxation, they too can be set only against profits of the same trade or non-trading profits, respectively.

Where a company has streamed trading losses carried forward, which can only be set against profits of the same trade, it is necessary to calculate the maximum amount of trading profits these losses can be used to relieve.

Likewise, where a company has streamed NTLRDs carried forward, which can only be set against non-trading profits, it is necessary to calculate the maximum amount of non-trading profits these deficits can be used to relieve.

The following example sets out the steps to take where a company uses only streamed restricted losses, and has no losses carried forward for relief against total profits.

Example

Company A has an accounting period ending 31 December 2020.聽 In that period, its profits are as follows:

• Trading profits of 拢20 million;
• Property business profits of 拢8 million.

Its in-year reliefs (CTM05060) are:

• NTLRDs of 拢2 million;
• Group relief claimed from a group company of 拢5 million.

This gives a total of 拢7 million. It chooses to set 拢6 million against trading profits and 拢1 million against non-trading profits.

The company鈥檚 carried-forward losses as at the beginning of the period are:

• Pre-1 April 2017 trading losses of 拢14 million;
• Pre-1 April 2017 NTLRDs of 拢9 million.

The company has been allocated 拢3 million of its group deductions allowance and it chooses to set 拢1 million against trading profits and 拢2 million against non-trading profits.

The company is not a life insurance company.

Steps 1 to 4

The first four steps apply for the company鈥檚 calculation of its relevant maxima for trading and for non-trading profits.

1-聽 Calculate modified total profits (CTA10/S269ZF (3) Step 1, CTM05040). This is the total profits of 拢28 million before deduction of the in-year NTLRDs and group relief.

2-聽 Compute the in-year reliefs (CTA10/S269ZF (3) Step 2). These are amounts that can be deducted from total profits that are not excluded deductions.聽 As above, these are the 拢2 million NTLRDs and the 拢5 million group relief, giving a total of 拢7 million.

3-聽 Divide the total profits into trading and non-trading profits (CTA10/S269ZF (3) Step 3, CTM05050). The trading profits are 拢20 million and the non-trading profits 拢8 million.

4-聽 Allocate the in-year reliefs between trading and non-trading profits (CTA10/S269ZF (3) Step 4, CTM05060). The company chooses to allocate 拢6 million to trading profits and 拢1 million to non-trading profits.

Relevant maximum for trading profits

The maximum amount of trading profits that can be set off using trading losses carried forward against profits of the same trade is computed as follows:

5-聽 Calculate the qualifying trading profits (CTA10/S269ZF (3) Step 5, CTM05070).聽 The qualifying trading profits are the trading profits of 拢20 million minus the 拢6 million of in-year relief allocated to trading profits, leaving 拢14 million.聽

6-聽 Calculate the relevant trading profits (CTA10/S269ZF (1), CTM05080). These are the 拢14 million qualifying trading profits minus the 拢1 million trading deductions allowance, which leaves 拢13 million.

Note that, in this case, there is no need to calculate the overall relevant profits as there are no carried-forward losses that can be set against total profits.

7-聽 Calculate the relevant maximum for trading profits (CTA10/S269ZB (5), CTM05090). This is 50 per cent of the relevant trading profits plus the trading profits deductions allowance:

拢13 million x 50 per cent + 拢1 million = 拢7.5 million.

This is the maximum amount of pre-1 April 2017 trading losses that can be deducted from trading profits of the period. Trading losses of this amount will be set off against the trading profits, unless the company chooses otherwise (CTM05090).

The company had 拢14 million trading losses carried forward at the start of the period and chooses to use the full 拢7.5 million allowable in accordance with the restriction.聽 This leaves unused trading losses of 拢6.5 million, which will be carried forward to the next accounting period.

Relevant maximum for non-trading profits

The maximum amount of non-trading profits that can be set off by NTLRDs is computed as follows:

8-聽 Calculate the qualifying non-trading profits (CTA10/S269ZF (3) Step 5, CTM05070). These are the non-trading profits of 拢8 million minus the in-year reliefs allocated to non-trading profits of 拢1 million, leaving 拢7 million.

9-聽 Calculate the relevant non-trading profits (CTA10/S269ZF (2), CTM05080).聽 These are the 拢7 million qualifying non-trading profits minus the 拢2 million non-trading deductions allowance, leaving 拢5 million.

10-聽 Calculate the relevant maximum for non-trading profits (CTA10/S269ZC (3), CTM05090). This is 50 per cent of the relevant non-trading profits plus the non-trading deductions allowance:

拢5 million x 50 per cent + 拢2 million = 拢4.5 million.

This is the maximum amount of pre-1 April 2017 NTLRDs that can be deducted from non-trading profits of the period.聽 NTLRDs of this amount will be set against non-trading profits unless the company chooses otherwise (CFM32040).

The company had 拢9 million NTLRDs carried forward at the start of the period and chooses to use the full 拢4.5 million allowable in accordance with the restriction.聽 This leaves unused NTLRDs of 拢4.5 million, which will be carried forward to the next accounting period.

Company鈥檚 profits chargeable to Corporation Tax

The company鈥檚 profits chargeable to Corporation Tax are calculated as follows:

拢20 million trading profits less 拢7.5 million trading losses carried forward (deducted at CTA10/S4 (3) Step 1) leaves 拢12.5 million.

Add 拢8 million property business profits less NTLRDs carried forward of 拢4.5 million (deducted at CTA10/S4 (3) Step 1) giving total profits of 拢16 million.聽 From this are deducted the following amounts, CTA10/S4 (2) Step 2:

• NTLRDs incurred in the same period of 拢2 million;
• Group relief claimed from a group company of 拢5 million.

This leaves profits chargeable to Corporation Tax of 拢16 million - 拢7 million = 拢9 million.

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