Revenue Note for Guidance
This section provides relief for relevant trading losses (i.e. losses arising in a trade the income from which is taxable at the standard corporation tax rate in an accounting period which cannot otherwise be relieved. This is done by reducing the corporation tax payable for the accounting period by an amount determined by applying the standard rate of corporation tax to the amount of the unrelieved loss. Corporation tax which is referable to profits of policyholders is excluded from relief under this section.
(1) “relevant corporation tax” is the corporation tax which can be reduced by the relief. It is the corporation tax which would be chargeable for the accounting period apart from:
“relevant trading loss” has the same meaning as in section 396A (i.e. a trading loss 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). However, it does not include any amount that is the relevant amount of the loss for the purposes of section 403(4) or any loss that would be ring-fenced under that section if section 403(8) had not been enacted. This means that losses that are, or would, but for the provision of section 403(8), be subject to the ring-fence in section 403(4) do not qualify for relief on a value basis.
(2) Where the amount of a relevant trading loss incurred by a company in an accounting period exceeds the amounts that could, if a claim had been made, have been set off in respect of that loss against income of the company (under section 396A) then the company can claim relief in respect of the excess.
(3) Where a company claims relief under this section in respect of the excess, the relevant corporation tax for the accounting period is to be reduced by an amount determined by applying the standard rate to those “relevant trading losses”.
(4) Losses can be relieved in this way against corporation tax of the accounting period in which they were incurred and of previous accounting periods ending within a specified time.
The previous accounting periods in which relief can be given for a loss incurred in an accounting period are those ending in the time immediately preceding the accounting period in which the loss was incurred and which is equal in length to that accounting period. However, the reduction which can be made in the relevant corporation tax for an accounting period falling partly before that time is to be proportionately reduced on a time basis.
(5) Special rules apply to determine the amount of the losses which are to be regarded as having been used. The amount of losses which are to be regarded as used is determined by regrossing the loss relief given at the standard corporation tax rate.
In loss relief generally, losses are offset against profits before deducting charges. Consistency with that approach is achieved by providing that the amount of losses treated as used is the amount which would have been treated as used if there were no non-trade charges on income, expenses of management or other similar amounts deductible from profits of more than one description. This ensures that only the appropriate amount of losses is brought forward. However, the definition ensures that there is nothing to prevent the carry forward of excess capital allowances under section 308.
(6) 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