Corporation Tax Act 2010

Chapter 2 Disallowance of trading losses

673 Introduction to Chapter

(1) This Chapter applies if—

(a) there is a change in the ownership of a company (“the company”), and

(b) condition A or B is met.

(2) Condition A is that within any period of 3 years in which the change in ownership occurs there is a major change in the nature or conduct of a trade carried on by the company.

(3) Condition B is that the change in ownership occurs at any time after the scale of the activities in a trade carried on by the company has become small or negligible and before any significant revival of the trade.

(4) In this section “major change in the nature or conduct of a trade” includes—

(a) a major change in the type of property dealt in, or services or facilities provided in, the trade, or

(b) a major change in customers, outlets or markets of the trade.

This Chapter applies even if the change is the result of a gradual process which began before the period of 3 years mentioned in subsection (2).

(5) In this Chapter—

• “the change in ownership” means the change in ownership mentioned in subsection (1),

• “the company” has the same meaning as in this section, and

• “trade” includes an office.

674 Disallowance of trading losses

(1) In calculating the company’s taxable total profits of an accounting period beginning before the change in ownership, no relief may be given under section 37 or 42 (relief for trade losses) for a loss made by the company in an accounting period ending after the change in ownership.

(2) No relief may be given under section 45 for a loss made by the company in an accounting period beginning before the change in ownership by carrying forward the loss to reduce the profits of a trade of an accounting period ending after the change in ownership.

(3) For the purposes of this section and section 675—

(a) the accounting period in which the change in ownership occurs is treated as two separate accounting periods, the first ending with the change and the second consisting of the remainder of the period, and

(b) the profits or losses of the accounting period are apportioned to the two periods.

(4) The apportionment under subsection (3)(b) is to be made on a time basis according to the respective lengths of the two periods.

(5) But if that method of apportionment would work unjustly or unreasonably in any case, such other method is to be used as is just and reasonable.

(6) In subsection (2), “profits of a trade” includes interest or dividends treated as profits of a trade under section 46.

675 Disallowance of trading losses: calculation of balancing charges

(1) The following provisions apply if relief in respect of the company’s losses is restricted because of section 674(2).

(2) In applying the provisions of CAA 2001 about balancing charges to the company by reference to any event after the change in ownership, there is to be disregarded any allowance falling to be made in taxing the company’s trade for any accounting period beginning before the change in ownership.

This subsection applies despite section 577(3) of CAA 2001.

(3) But subsection (2) does not apply if the allowance has been given effect to by means of relief against any profits of that accounting period or any subsequent accounting period beginning before the change in ownership.

(4) For the purposes of subsection (3), it is to be assumed that any loss attributable to any such allowance as is mentioned in subsection (2) is relieved before any loss which is not attributable to such an allowance.

676 Disallowance of trading losses where company reconstruction without change in ownership

In relation to any relief available under section 944(3) (modified application of Chapter 2 of Part 4) to a successor company, section 674(2) applies as if—

(a) any loss sustained by a predecessor company had been sustained by a successor company, and

(b) as if the references to a trade included the trade as carried on by a predecessor company.