396A Relief for relevant trading losses

Summary

This section places a ring-fence on the offset of certain trading losses incurred in an accounting period of a company against profits of the company in that accounting period and in the previous accounting period.

Details

Definitions

The section identifies “relevant trading losses” as trading losses incurred by a company in an accounting period other than so much of the loss as is incurred in an excepted trade (i.e. a trade the income from which is taxable at the 25 per cent rate) and any loss which is ring-fenced under the leasing ring-fence rules set out in section 403(4) or would be so ring-fenced but for section 403(8). Section 403(8) specifically provides that IFSC and Shannon leasing companies are not subject to the ring-fence rule in section 403(4). Instead, they are subject to their own ring-fencing rule under the certificate given to them by the Minister for Finance. The definition of “relevant trading losses” clarifies that any leasing losses of such companies may not be off-set under section 396A against other income. This is achieved in paragraph (b) which states that such a loss does not include any loss that would be ring-fenced under section 403(4) if section 403(8) had not been enacted.

“Relevant trading income” has the same meaning as in section 243A, i.e. trading income other than so much of that income as is taxable at the 25 per cent rate.

Ring-fencing of losses

The sideways or backwards set-off of a loss under section 396 does not apply to relevant trading losses. For the purposes of section 396 losses of an accounting period are to be reduced by so much of those losses as are a relevant trading loss.

Set off of losses

Instead, the losses may be set off sideways or backwards against:

• relevant trading income of the accounting period or of certain previous accounting periods,
• income of a trade of non-life insurance, reinsurance and against the investment income of a life assurance company that is attributable to its shareholders, and
• foreign dividend income which is chargeable at the 12½ rate of tax under section 21B.

[Losses which are not subject to a claim for sideways or backwards set off or are not used under a claim under this section, section 396B, 420 or 420B may be carried forward under section 396(1) and set against income of future years from the trade in which they were incurred.]

Where trading losses are to be set backwards under this section the losses of an accounting period can be offset against profits of a period equal in length to the accounting period and which ends immediately before the accounting period. If necessary parts of accounting periods can be taken into account for this purpose.

A claim for relief must be made within 2 years after the end of the accounting period in which the loss was incurred.

Relevant Date: Finance Act 2021