835AAD Carry forward of disallowable amount

Summary

This section sets out the rules relating to the carry forward of disallowable amounts.

(1) Where a relevant entity incurs a disallowable amount, and section 835AAC applies, that amount is carried forward to succeeding accounting periods. When carried forward, the amount is referred to as ‘deemed borrowing cost’.

(2) This subsection applies to an amount of deemed borrowing cost that arises from a disallowable amount that would have, but for this Part, resulted in the company paying less tax in respect of the accounting period in which the disallowable amount arose or the accounting period immediately prior to that accounting period.

(3) Where subsection (2) applies, a relevant entity can, subject to subsections (5), (6), (15) (3) and (16), make a claim to have the deemed borrowing cost deducted from its total profits or chargeable gains for an accounting period after the accounting period that the disallowable amount arose, or to create a loss or excess where there is an insufficiency of profits. Relief for a loss or excess created by the deemed borrowing cost will be given in accordance with section 31, 396(1) or 399, as the case may be, and sections 397, 400 and 401 will apply to that loss.

(4) Where a claim is made under subsection (3), the deduction claimed applies after all other claims for relief have been made in respect of an accounting period.

(5) This subsection applies where a deemed borrowing cost is deducted from profits chargeable to corporation tax at 25%. The amount of deemed borrowing cost that is used up, in reducing the profits chargeable to tax at the 25% rate is the amount of deemed borrowing multiplied by 25%/12.5%. This reflects the tax value of the deemed borrowing cost, being 12.5%. The effect is that where the deemed borrowing cost is deducted from profits chargeable to corporation tax at 25%, more deemed borrowing cost is utilised than where the deemed borrowing cost is deducted from profits chargeable to corporation tax at 12.5%.

(6) This subsection applies where a deemed borrowing cost is deducted from chargeable gains chargeable to tax at the ‘CGT rate’. The amount of deemed borrowing cost that is used up, in reducing the chargeable gains chargeable to tax at the ‘CGT rate’ is the amount of deemed borrowing cost multiplied by the ‘CGT rate’/12.5%. This reflects the tax value of the deemed borrowing cost, being 12.5%. The effect is that where the deemed borrowing cost is deducted from chargeable gains chargeable to tax at the ‘CGT rate’, more deemed borrowing cost is utilised than where the deemed borrowing cost is deducted from profits chargeable to corporation tax at 12.5%.

(7) This subsection applies to an amount of deemed borrowing cost that arises from a disallowable amount that would have, but for this Part, resulted in the relevant entity incurring a loss or excess, or a greater loss or greater excess, or offsetting a lower amount of loss against income under section 396(1), 399(1) or 399(2) in the accounting period in which the disallowable amount arose.

(8) Where subsection (7) applies, and subject to subsections (9), (10), (15) and (16), the (8) deemed borrowing cost will be treated as a loss or excess arising in the period in which the disallowable amount arose and relief for that loss or excess will be given under section 31, section 396(1) or section 399 as the case may be. Sections 397, 400 and 401 will also apply to this amount as they apply to a loss.

(9) This subsection applies where a deemed borrowing cost treated as a loss or excess is deducted from profits chargeable to corporation tax at 25%. The amount of deemed borrowing cost treated as a loss or excess that is used up in reducing the profits chargeable to tax at the 25% rate is the amount of deemed borrowing treated as a loss or excess multiplied by 25%/12.5%. This reflects the tax value of the deemed borrowing cost treated as a loss or excess, being 12.5%. The effect is that where the deemed borrowing cost treated as a loss or excess is deducted from profits chargeable to corporation tax at 25%, more deemed borrowing cost treated as a loss or excess is utilised than where the deemed borrowing cost treated as a loss or excess is deducted from profits chargeable to corporation tax at 12.5%.

(10) This subsection applies where a deemed borrowing cost treated as a loss or excess is deducted from chargeable gains chargeable to tax at the ‘CGT rate’. The amount of deemed borrowing cost treated as a loss or excess that is used up in reducing the chargeable gains chargeable to tax at the ‘CGT rate’ is the amount of deemed borrowing cost treated as a loss or excess multiplied by the ‘CGT rate’/12.5%. This reflects the tax value of the deemed borrowing cost treated as a loss or excess, being 12.5%. The effect is that where the deemed borrowing cost treated as a loss or excess is deducted from chargeable gains chargeable to tax at the ‘CGT rate’, more deemed borrowing cost treated as a loss or excess is utilised than where the deemed borrowing cost treated as a loss or excess is deducted from profits chargeable to corporation tax at 12.5%.

(11) This subsection applies to an amount of deemed borrowing cost that arises from a disallowable amount that would have, but for this Part, resulted in the company incurring an excess of expenses of management under section 83, or incurring a greater excess of expenses of management in the accounting period in which the disallowable amount arose.

(12) Where subsection (11) applies, and subject to subsections (13), (14), (15) and (16), a relevant entity’s deemed borrowing cost will be treated as if it were expenses of management disbursed in the accounting period in which the disallowable amount arose and section 83 will apply accordingly.

(13) This subsection applies where a deemed borrowing cost treated as an expense of management is deducted from profits chargeable to corporation tax at 25%. The amount of deemed borrowing cost treated as an expense of management that is used up in reducing the profits chargeable to tax at the 25% rate is the amount of deemed borrowing treated as an expense of management is multiplied by 25%/12.5%. This reflects the tax value of the deemed borrowing cost treated as an expense of management, being 12.5%, such that where the deemed borrowing cost treated as an expense of management is deducted from profits chargeable to corporation tax at 25%, more deemed borrowing cost treated as an expense of management is utilised than where the deemed borrowing cost an expense of management is deducted from profits chargeable to corporation tax at 12.5%.

(14) This subsection applies where a deemed borrowing cost treated as an expense of management is deducted from chargeable gains chargeable to tax at the ‘CGT rate’. The amount of deemed borrowing cost treated as an expense of management that is used up in reducing the chargeable gains chargeable to tax at the 'CGT rate’ is the amount of deemed borrowing cost treated an expense of management is multiplied by the ‘CGT rate’/12.5%. This reflects the tax value of the deemed borrowing cost treated as an expense of management, being 12.5%. The effect is that where the deemed borrowing cost treated as an expense of management is deducted from chargeable gains chargeable to tax at the ‘CGT rate’, more deemed borrowing cost treated as an expense of management is utilised than where the deemed borrowing cost treated as an expense of management is deducted from profits chargeable to corporation tax at 12.5%.

(15) The total of relief available in an accounting period under subsections (3), (8) and (12) of this section cannot exceed the amount of total spare capacity in that accounting period.

(16) Where the deemed borrowing cost exceeds the total spare capacity, in an accounting period, relief will be given under subsection (8) in priority to subsection (3) or (12).

(17) When calculating the amount of relief available for deemed borrowing cost under subsections (3), (8) and (12), the amount will be reduced by any amount of deemed borrowing cost relieved in prior accounting periods.

(18) Any amount of deemed borrowing cost carried forward will not form part of the relevant entity’s deductible interest equivalent for that accounting period.

(19) This subsection provides that a disallowable amount which reduced the amount of interest deductible in connection with the provision of a specified intangible asset in an accounting period cannot be carried forward as a deemed borrowing cost, but rather may be available for relief under section 291A and carried forward as an amount of interest for which relief cannot be given by virtue of section 291A(6)(a).

Relevant Date: Finance Act 2021