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Most trading losses and NTLRDs arising after 1 April 2017 will benefit from the relaxation, which allows relief against total profits of the company. In addition, companies with management expenses, property business losses or non-trading losses on intangible fixed assets that arose either before or after 1 April 2017 will generally be able to deduct these from their total profits.

Carried-forward trading losses and non-trading loan relationship deficits (NTLRDs) that arose before 1 April 2017 can only be set against trading profits and non-trading profits respectively. This also applies to certain post-1 April 2017 losses, for example where a trade or investment business becomes small or negligible (CTM04115).

Where a company has both:

• Streamed restricted carried-forward losses (CTM05020), which can only be set against a particular type of profit, and
• Restricted carried-forward losses that are relevant deductions and can be deducted from total profits,

Then it is necessary to calculate the relevant maxima for trading, non-trading and total profits.

The following example sets out the steps to be taken for each type of loss.

Example

Company B has an accounting period ending 31 March 2021. In that period, its profits are as follows:

• Trading profits of 拢35 million,
• A non-trading loan relationship credit of 拢15 million.

Its in-year reliefs (CTM05060) are:

• Management expenses of 拢5 million,
• Group relief claimed from a group company of 拢2 million.

This gives a total of 拢7 million. It chooses to set 拢3 million against trading profits and 拢4 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15 million,
• Pre-1 April 2017 NTLRDs of 拢1 million,
• Post-1 April 2017 trading losses of 拢8 million,
• Post-1 April 2017 NTLRDs of 拢2 million.

None of the circumstances which could remove the relaxation from the post-1 April 2017 trading losses or NTLRDs have arisen, so both can be deducted from total profits.

The company has been allocated the full 拢5 million of its group deductions allowance and it chooses to set the full amount against 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, non-trading and total profits.

1-聽 Calculate the modified profits (CTA10/S269ZF(3) Step 1, CTM05040). This is the total profits of 拢50 million before deduction of the in-year management expenses 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, but not excluded deductions. These will be the 拢5 million management expenses and the 拢2 million group relief.

3-聽 Divide the total profits into trading and non-trading profits (CTA10/S269ZF(3) Step 3, CTM05050). The trading profits are 拢35 million, leaving non-trading profits of 拢15 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3 million to trading profits and 拢4 million to non-trading profits.

Relevant maximum for trading profits

The amount of the pre-1 April 2017 trading losses that may be used is computed as follows:

5-聽 Compute the qualifying trading profits (CTA10/S269ZF(3) Step 5, CTM05070). The qualifying trading profits are the trading profits of 拢35 million minus the 拢3 million in-year reliefs allocated to trading profits, giving 拢32 million.聽

6-聽 Compute the relevant trading profits (CTA10/S269ZF(1), CTM05080). These are the 拢32 million qualifying trading profits minus the 拢5 million trading profits deductions allowance which gives 拢27 million.

7-聽 Calculate the relevant maximum for trading profits (CTM05090). This is 50% of the relevant trading profits plus the trading profits deductions allowance:

拢27 million x 50% + 拢5 million = 拢18.5 million.

This is the maximum amount of pre-1 April 2017 trading losses that can be deducted from trading profits of the period.

The company had 拢15 million trading losses carried forward at the start of the period. This is less than the 拢18.5 million relevant maximum, so the full 拢15 million will be deducted from trading profits of the period unless the company chooses otherwise (CTM05090).

The company allows the full 拢15 million to be deducted. This leaves unused pre-1 April 2017 trading losses of nil.

Relevant maximum for non-trading profits

The amount of the pre-1 April 2017 NTLRDs that may be used is computed as follows:

8-聽 Compute the qualifying non-trading profits (CTA10/S269ZF(3) Step 5, CTM05070). The qualifying non-trading profits are the non-trading profits of 拢15 million minus the in-year reliefs allocated to non-trading profits of 拢4 million, giving 拢11 million.聽

9-聽 Compute the relevant non-trading profits (CTA10/S269ZF(2), CTM05080). There is no deductions allowance available to set against the qualifying non-trading profits, since the company chose to allocate its entire deductions allowance to trading profits, and so the amount of the relevant non-trading profits is 拢11 million.

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

拢11 million x 50% + nil = 拢5.5 million.

This is the maximum amount of pre-1 April 2017 NTLRDs that can be deducted from non-trading profits of the period.

The company had pre-1 April 2017 NTLRDs carried forward of 拢1 million, and so the full 拢1 million will be deducted from non-trading profits of the period unless the company chooses otherwise (CFM32040).

The company allows the full 拢1 million to be deducted. This leaves unused pre-1 April 2017 NTLRDs of nil.

Relevant maximum for total profits

The maximum amount of profits that can be set off by restricted carried-forward losses available for relief against total profits (relevant deductions) (CTM05020) is computed as follows:

11-聽 Calculate the relevant profits (CTA10/S269ZFA, CTM05080). This is the modified total profits minus any in-year reliefs (steps 1 and 2), less the company鈥檚 deduction allowance for the AP.

拢27 million qualifying trading profits less the deductions allowance (step 6, above) + 拢11 million qualifying non-trading profits (step 9) = 拢38 million.

12-聽 Calculate the relevant maximum for total profits (CTA10/S269ZD(4), CTM05090). This is 50% of the relevant profits plus the amount of the deductions allowance:

拢38 million x 50% + 拢5 million = 拢24 million.

This is the overall maximum amount of restricted carried-forward losses that the company can deduct from its profits of the accounting period, including streamed restricted losses and relevant deductions. At steps 7 and 10, the company chose to deduct 拢15 million pre-1 April 2017 trading losses carried forward and 拢1 million pre-1 April 2017 NTLRDs carried forward from its trading and non-trading profits, respectively. It needs to subtract these from its relevant maximum for total profits to find its remaining capacity to use restricted carried-forward losses.

13-聽 Subtract from the relevant maximum for total profits all streamed restricted carried-forward losses that the company will use in the period.

The relevant maximum for total profits of 拢24 million less 拢15 million pre-1 April 2017 trading losses and 拢1 million pre-1 April 2017 NTLRDs gives 拢8 million.

The company therefore has 拢8 million remaining capacity to deduct restricted carried-forward losses from its total profits.

The company has 拢8 million post-1 April 2017 trading losses and 拢2 million post-1 April 2017 NTLRDs. It does not have capacity to use the full 拢10 million. In this case, the company makes claims to deduct 拢2 million post-1 April 2017 NTLRDs carried forward and 拢6 million post-1 April 2017 trading losses carried forward from its total profits.聽

This leaves the company with 拢2 million post-1 April 2017 trading losses to carry forward to subsequent periods.

Company鈥檚 profits chargeable to Corporation Tax

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

拢35 million trading profits less 拢15 million pre-1 April 2017 trading losses carried forward less pre-1 April 2017 NTLRDs carried forward of 拢1 million (deducted at CTA10/S4(3) Step 1) gives 拢20 million.

Add 拢15 million non-trading loan relationship credit less pre-1 April 2017 NTLRDs carried forward of 拢1 million (deducted at CTA10/S4(3) Step 1) to give total profits of 拢34 million.

Less the following amounts, deducted at CTA10/S4(2) Step 2:

• Management expenses of 拢5 million,
• Post-1 April 2017 NTLRDs carried forward of 拢2 million,
• Post-1 April 2017 trading losses carried forward of 拢6 million,
• Group relief claimed from a group company of 拢2 million.

This gives profits chargeable to Corporation Tax of 拢34 - 拢15 = 拢19 million.