Part 5

Loan Relationships
Chapter 16

Non-trading deficits: pre-1 April 2017 deficits and charities

Introduction to Chapter
456
1
This Chapter applies if—
a
for any accounting period a company has a non-trading deficit from its loan relationships under section 301(6), and
b
either—
i
that accounting period begins before 1 April 2017, or
ii
at the end of that accounting period the company is a charity.
2
In this Chapter “the deficit” and “the deficit period” mean that deficit and that period respectively (but see section 458(5)).
3
Sections 457 and 458 set out the rules about carrying the deficit forward to later accounting periods.
4
Sections 459 and 460 deal with claims for the deficit to be dealt with differently.
5
Sections 461 to 463 deal with the consequences of such claims.

Basic rule for deficits: carry forward to accounting periods after deficit period
457
1
The basic rule is that the deficit must be carried forward and set off against non-trading profits of the company for accounting periods after the deficit period in accordance with subsection (3) and section 458 (subject to subsection (2A)).
2
That rule does not apply to so much of the deficit as—
a
is surrendered as group relief under Part 5 of CTA 2010, or
b
is the subject of a claim by the company under section 459 (claim to set off deficit against profits of deficit period or earlier periods).
2A
If the company is a charity at the end of the deficit period, the deficit may not be carried forward and set off against non-trading profits (as described in subsection (1)) for an accounting period (and, accordingly, the deficit may not be surrendered as group relief under Part 5 of CTA 2010 for the purposes of subsection (2)(a)).
3
So much of the amount carried forward from the deficit period as is not the subject of a claim under section 458(1) must be set off against the non-trading profits of the company for the next accounting period after the deficit period.
4
Those profits are reduced accordingly.
5
In this Chapter “non-trading profits”, in relation to a company, means so much of the company's profits as does not consist of trading income for the purposes of section 37 of CTA 2010 (deduction of trading losses from total profits of the same or an earlier period).

Claim to carry forward deficit to later accounting periods
458
1
The company may make a claim for so much of the amount carried forward from the deficit period as is specified in the claim to be excepted from being set off against non-trading profits of the first accounting period after the deficit period (“the first later period”).
2
Any such claim must be made within the period of 2 years after the end of the first later period.
3
Subsection (4) applies if any amount is carried forward from the deficit period under section 457(1) which—
a
cannot be set off under section 457(3) against non-trading profits of the first later period, or
b
is the subject of a claim under subsection (1).
4
That amount is treated for the purposes of this Part as if it were—
a
an amount of non-trading deficit from the company's loan relationships for the first later period, and
b
an amount which falls to be carried forward and set against non-trading profits of later accounting periods under section 457(1).
5
Accordingly, section 457 and this section apply as if the first later period were the deficit period.

Claim to set off deficit against profits of deficit period or earlier periods
459
1
The company may make a claim for the whole or part of the deficit—
a
to be set off against any profits of the company (of whatever description) for the deficit period, or
b
to be carried back to be set off against profits for earlier accounting periods.
2
No claim may be made under subsection (1) in respect of a deficit which is surrendered as group relief under Part 5 of CTA 2010.
3
Subsection (1) does not apply if the company is a charity.
4
For time limits and other provisions applicable to claims under subsection (1), see section 460.
5
For what happens when a claim is made under subsection (1)(a), see section 461.
6
For what happens when a claim is made under subsection (1)(b), and for the profits available for relief where such a claim is made, see sections 462 and 463.

Time limits and procedure for claims under section 459(1)
460
1
A claim under section 459(1) must be made within—
a
the period of 2 years after the deficit period ends, or
b
such further period as an officer of Revenue and Customs allows.
2
Different claims may be made in respect of different parts of a non-trading deficit for any deficit period.
3
But no claim may be made in respect of any part of a deficit to which another such claim relates.

Claim to set off deficit against other profits for the deficit period
461
1
This section applies if a claim is made under section 459(1)(a) for the whole or part of the deficit to be set off against profits for the deficit period.
2
The general rule is that the amount to which the claim relates must be set off against the profits of the company for the deficit period which are identified in the claim.
3
Those profits are reduced accordingly.
4
The general rule is subject to subsections (5) and (7).
5
Relief for any deficit incurred in a trade in an earlier accounting period must be given before relief under this section.
6
But relief under this section must be given before relief is given against profits for the deficit period—
a
under section 37 or 62(1) to (3) of CTA 2010 (deduction of losses from total profits for the same or earlier accounting periods), or
b
as a result of a claim under section 459(1)(b) (carry-back) in respect of a deficit for a later period.
7
No relief may be given under this section against ring fence profits of the company within the meaning of Part 8 of CTA 2010 (oil activities).

Claim to carry back deficit to earlier accounting periods
462
1
This section applies if a claim is made under 459(1)(b) for the whole or part of the deficit to be carried back to be set off against profits for accounting periods before the deficit period.
2
The claim has effect only if it relates to an amount equal to the lesser of—
a
so much of the deficit as is not an amount in relation to which a claim is made under section 459(1)(a), and
b
the total amount of the profits available for relief under this section.
3
Section 463 explains which profits are so available.
4
The amount to which the claim relates is set off against those profits by treating them as reduced accordingly.
5
If those profits are profits for more than one accounting period, the relief is applied by setting off the amount to which the claim relates against profits for a later period before setting off any remainder of that amount against profits for an earlier period.

Profits available for relief under section 462
463
1
The profits available for relief under section 462 are the amounts which (apart from the relief) would be charged under this Part as profits for accounting periods ending within the permitted period, after giving every prior relief.
2
In this section—
- “the permitted period” means the period of 12 months immediately before the deficit period, and
- “prior relief” means a relief which subsection (5) provides must be given before relief under section 462.
3
If an accounting period ending within the permitted period begins before it, only a part of the amount which (apart from the relief) would be chargeable under this Part for that period, after giving every prior relief, is available for relief under section 462.
4
That part is so much as is proportionate to the part of the accounting period in the permitted period.
5
The reliefs which must be given before relief under section 462 are—
a
relief as a result of a claim under section 459(1)(a) (claim for deficit to be set off against total profits for the deficit period),
b
relief in respect of a loss or deficit incurred or treated as incurred in an accounting period before the deficit period,
c
relief under Part 6 of CTA 2010 (charitable donations relief) in respect of payments made wholly and exclusively for the purposes of a trade,
d
relief under section 37 of CTA 2010 (losses deducted from total profits of the same, or an earlier, accounting period), and
e
if the company is a company with investment business for the purposes of Part 16 (companies with investment business)—
i
any deduction in respect of management expenses under section 1219 (expenses of management of a company's investment business),
ii
relief under Part 6 of CTA 2010 in respect of payments made wholly and exclusively for the purposes of its business, and
iii
any allowance under Part 2 of CAA 2001 (plant and machinery allowances).
Words in Pt. 5 Ch. 16 heading inserted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 2
Words in s. 463(5)(c) substituted (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 621(a) (with Sch. 2)
Pt. 5 modified (with effect in accordance with reg. 1(2)(3) of the amending S.I.) by The Taxation of Regulatory Capital Securities Regulations 2013 (S.I. 2013/3209), regs. 1(1), 11(3)-(6)
Words in s. 457(5) substituted (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 618(3) (with Sch. 2)
S. 456(1)(b) and word inserted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 3(b)
Pt. 5 applied (with modifications) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), ss. 990(5), 1184(1) (with Sch. 2)
Words in s. 463(5)(e)(ii) substituted (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 621(c) (with Sch. 2)
Words in s. 459(1)(a) substituted (retrospective and with effect in accordance with art. 1(2) of the amending S.I.) by Corporation Tax Act 2009 (Amendment) Order 2010 (S.I. 2010/614), arts. 1(1), 3(3)
Words in s. 461(6)(a) substituted (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 620(2) (with Sch. 2)
Pt. 5 modified by 2010 c. 4, s. 356NB(1)-(4) (as inserted (1.4.2014) by Finance Act 2014 (c. 26), Sch. 16 paras. 4, 6)
Pt. 5 modified by 2007 c. 3, s. 809FZZ(9) (as inserted (with effect in accordance with s. 37(4) of the amending Act) by Finance Act 2016 (c. 24), s. 37(2))
Pt. 5 modified (with effect in accordance with s. 148 of the amending Act) by Finance Act 2012 (c. 14), s. 88(1)(2)(7) (with s. 147, Sch. 17)
Pt. 5 modified by 2010 c. 4, s. 356NC(1)-(4) (as inserted (1.4.2014) by Finance Act 2014 (c. 26), Sch. 16 paras. 4, 6)
Pt. 5 modified (30.9.2013) by The BRB (Residuary) Limited (Tax Consequences) Order 2013 (S.I. 2013/2242), arts. 1, 7
Pt. 5 modified by 2010 c. 4, s. 676AG(1) (as inserted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 75)
Words in s. 463(5)(d) substituted (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 621(b) (with Sch. 2)
Pt. 5 modified (1.4.2012) by Budget Responsibility and National Audit Act 2011 (c. 4), s. 29, Sch. 4 para. 2; S.I. 2011/2576, art. 5
Words in s. 457(2)(a) substituted (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 618(2) (with Sch. 2)
Pt. 5 applied (with effect in accordance with Sch. 24 paras. 13-16 of the amending Act) by Finance Act 2009 (c. 10), Sch. 24 para. 15(2)(3)
Words in s. 456(1) renumbered as s. 456(1)(a) (with effect in accordance with Sch. 4 para. 190 of the amending Act) by virtue of Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 3(a)
Pt. 5 modified (15.11.2011 for specified purposes, 30.3.2012 for E.W.) by Localism Act 2011 (c. 20), ss., 240(5)(o), Sch. 24 para. 5; S.I. 2012/628, art. 3(b)
Words in s. 461(7) substituted (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 620(3) (with Sch. 2)
Words in s. 459(2) substituted (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 619 (with Sch. 2)
S. 457(2A) inserted (with effect in accordance with Sch. 3 para. 30-36 of the amending Act) by Finance (No. 2) Act 2023 (c. 30), Sch. 3 para. 27(3)
Words in s. 457(1) inserted (with effect in accordance with Sch. 3 para. 30-36 of the amending Act) by Finance (No. 2) Act 2023 (c. 30), Sch. 3 para. 27(2)