Corporation Tax Act 2010

Chapter 2 U.K. Trade losses

Introduction U.K.

36 Introduction to Chapter U.K.

[F1 (1) This Chapter provides relief for a loss made by a company in a trade (see sections 37 to 47)]

(2) This Chapter also provides for restrictions on relief for the following cases—

(a) farming or market gardening (sections 48 to 51),

(b) dealings in commodity futures (section 52),

(c) leasing contracts and company reconstructions (section 53), and

(d) receipts of interest, dividends and royalties by a non-UK resident company (section 54).

(3) In this Chapter references to a company carrying on a trade are references to the company carrying on the trade so as to be within the charge to corporation tax in relation to the trade.

(4) In this Chapter, except in so far as the context otherwise requires—

(a) references to a trade include an office, and

(b) references to carrying on a trade include holding an office.

Textual Amendments

F1 S. 36(1) substituted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 8(1)

[F2 Relief in loss-making period and carry back relief] U.K.

Textual Amendments

F2 S. 37 cross-heading substituted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 9

37 Relief for trade losses against total profits U.K.

(1) This section applies if, in an accounting period, a company carrying on a trade makes a loss in the trade.

(2) The company may make a claim for relief for the loss under this section (but see subsection (5)).

(3) If the company makes a claim, the relief is given by deducting the loss from the company's total profits of—

(a) the accounting period in which the loss is made (“the loss-making period”), and

(b) if the claim so requires, previous accounting periods so far as they fall (wholly or partly) within the period of 12 months ending immediately before the loss-making period begins.

(4) The amount of a deduction to be made under subsection (3) for any accounting period is the amount of the loss so far as it cannot be deducted under that subsection for a subsequent accounting period.

(5) The company may not make a claim if, in the loss-making period, the company carries on the trade wholly outside the United Kingdom.

(6) A deduction under subsection (3)(b) may be made for an accounting period only if the company—

(a) carried on the trade in the period, and

(b) did not do so wholly outside the United Kingdom.

(7) The company's claim must be made—

(a) within the period of two years after the end of the loss-making period, or

(b) within such further period as an officer of Revenue and Customs may allow.

(8) If, for an accounting period, deductions under subsection (3) are to be made for losses of different accounting periods, the deductions are to be made in the order in which the losses were made (starting with the earliest loss).

(9) Relief under this section is subject to restriction or modification in accordance with provisions of the Corporation Tax Acts.

Modifications etc. (not altering text)

C1 S. 37 applied (with effect in accordance with s. 148 of the amending Act) by Finance Act 2012 (c. 14), s. 123 (with s. 147, Sch. 17(34))

C2 S. 37 modified by 2009 c. 4, s. 1218ZDB(2) (as inserted (for specified purposes and with effect in accordance with Sch. 6 paras. 20, 21(1)(a) of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 6 para. 1 (with Sch. 6 para. 21(3)))

C3 S. 37(3)(b) applied (with modifications) by 2009 c. 10, Sch. 6 para. 3(1) (as 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. 714(2) (with Sch. 2))

C4 S. 37(3)(b) modified (with application in accordance with Sch. 2 para. 4(2)(3) of the amending Act) by Finance Act 2021 (c. 26), Sch. 2 para. 4(1)

38 Limit on deduction if accounting period falls partly within 12 month period U.K.

(1) This section applies if an accounting period falls partly within the period of 12 months mentioned in section 37(3)(b).

(2) The amount of the deduction for the loss for the accounting period is not to exceed an amount equal to the overlapping proportion of the company's total profits of that period.

(3) The overlapping proportion is the same as the proportion that the part of the accounting period falling within the period of 12 months bears to the whole of the accounting period.

Modifications etc. (not altering text)

C5 S. 38(1) applied (with modifications) by 2009 c. 10, Sch. 6 para. 3(1) (as 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. 714(2) (with Sch. 2))

C6 S. 38(1)(3) modified (with application in accordance with Sch. 2 para. 4(2)(3) of the amending Act) by Finance Act 2021 (c. 26), Sch. 2 para. 4(1)

C7 S. 38(3) applied (with modifications) by 2009 c. 10, Sch. 6 para. 3(1) (as 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. 714(2) (with Sch. 2))

39 Terminal losses: extension of periods for which relief may be given U.K.

(1) This section applies if—

(a) a company ceases to carry on a trade, and

(b) the company has made a terminal loss in the trade.

(2) Sections 37(3)(b) and 38(1) and (3) have effect in relation to the terminal loss as if the references to 12 months were references to 3 years.

(3) The following are terminal losses made in the trade—

(a) the whole of any loss made by the company in the trade in an accounting period that begins during the final 12 months, and

(b) the overlapping proportion of any loss made by the company in the trade in an accounting period that ends, but does not begin, during the final 12 months.

(4) The overlapping proportion is the same as the proportion that the part of the accounting period falling within the final 12 months bears to the whole of the accounting period.

(5) “The final 12 months” means the period of 12 months ending when the company ceases to carry on the trade.

(6) This section is subject to section 41.

40 Ring fence trades: extension of periods for which relief may be given U.K.

(1) This section applies if—

(a) in an accounting period a company makes a loss in a ring fence trade (as defined in section 162 of CAA 2001),

(b) the accounting period is an accounting period [F3 for which any allowances under section 164 or [F4 by virtue of section 416ZA] of CAA 2001 are made to the company in respect of decommissioning expenditure], and

(c) not all the loss is a terminal loss (see section 39(3) above).

(2) Sections 37(3)(b) and 38(1) and (3) have effect in relation to the loss (so far as it is not a terminal loss) as if the references to 12 months were references to 3 years.

(3) But if the loss exceeds [F5 the sum of the allowances] mentioned in subsection (1)(b), subsection (2) applies in relation to the loss only so far as it does not exceed [F6 that amount].

[F7 (3A) In this section “decommissioning expenditure” has the meaning given by section 330C.]

(4) This section is subject to section 41.

Textual Amendments

F3 Words in s. 40(1)(b) substituted (with effect in accordance with Sch. 21 para. 6 of the amending Act) by Finance Act 2012 (c. 14), Sch. 21 para. 5(2)

F4 Words in s. 40(1)(b) substituted (with effect in accordance with s. 92(10) of the amending Act) by Finance Act 2013 (c. 29), s. 92(8)

F5 Words in s. 40(3) substituted (with effect in accordance with Sch. 21 para. 6 of the amending Act) by Finance Act 2012 (c. 14), Sch. 21 para. 5(3)(a)

F6 Words in s. 40(3) substituted (with effect in accordance with Sch. 21 para. 6 of the amending Act) by Finance Act 2012 (c. 14), Sch. 21 para. 5(3)(b)

F7 S. 40(3A) inserted (with effect in accordance with Sch. 21 para. 6 of the amending Act) by Finance Act 2012 (c. 14), Sch. 21 para. 5(4)

41 Sections 39 and 40: transfers of trade to obtain relief U.K.

Sections 39 and 40 do not apply by reason of a company ceasing to carry on a trade if—

(a) on the company ceasing to carry on the trade, any of the activities of the trade begin to be carried on by a person who is not (or by persons any or all of whom are not) within the charge to corporation tax, and

(b) the company's ceasing to carry on the trade is part of a scheme or arrangement the main purpose, or one of the main purposes, of which is to secure that either or both of those sections apply in relation to a loss by reason of the cessation.

42 Ring fence trades: further extension of period for relief U.K.

(1) This section applies if—

(a) a company makes a claim under section 37 for relief in respect of a loss made in a ring fence trade,

(b) the claim is made by virtue of section 39 or 40, and

(c) a part of the loss that is eligible for relief under section 37 cannot be so relieved because there are not enough profits from which the loss may be deducted under that section.

(2) Relief for the part of the loss that cannot be relieved under section 37 (“the unrelieved loss”) is given to the company under this section.

(3) The relief is given by deducting the unrelieved loss from the profits of the ring fence trade of an accounting period that—

(a) falls wholly or partly before the three year relief period, and

(b) ends on or after 17 April 2002.

(4) The amount of a deduction to be made under subsection (3) for any accounting period is so much of the unrelieved loss as cannot be deducted under that subsection from profits of the ring fence trade of a subsequent accounting period (but this is subject to subsections (5) and (6)).

(5) In the case of an accounting period that falls partly before the 3 year relief period, the amount given by subsection (4) is to be reduced by the proportion which the part of the accounting period falling within the 3 year relief period bears to the whole of the accounting period.

(6) In the case of an accounting period that falls partly before 17 April 2002, the amount given by subsection (4) is to be reduced by the proportion which the part of the accounting period falling before that date bears to the whole of the accounting period.

(7) If, for an accounting period, deductions under subsection (3) are to be made for losses of different accounting periods, the deductions are to be made in the order in which the losses were made (starting with the earliest first).

(8) In this section—

• “ring fence trade” has the same meaning as in section 162 of CAA 2001, and

• “3 year relief period” means the period of 3 years that applies to a claim under section 37 by virtue of section 39 or 40.

Modifications etc. (not altering text)

C8 S. 42 modified (with application in accordance with Sch. 2 para. 4(2)(3) of the amending Act) by Finance Act 2021 (c. 26), Sch. 2 para. 4(6)

43 Claim period in case of ring fence or mineral extraction trades U.K.

(1) This section applies in relation to a claim under section 37 if—

(a) as a result of section 165 of CAA 2001 (general decommissioning expenditure after ceasing ring fence trade) a company's qualifying expenditure for the accounting period in which it ceases to carry on a ring fence trade (as defined in section 162 of that Act) is increased by any amount, or

(b) as a result of section 416 [F8 or 416ZA] of CAA 2001 (expenditure on [F9 site restoration ] ) any expenditure is treated as qualifying expenditure of a company incurred on the last day of trading.

(2) So far as the claim relates to the increase mentioned in subsection (1)(a), the period of two years specified in section 37(7)(a) for making the claim is instead to be read as a reference to the period given by adding two years to the post-cessation period (within the meaning of section 165 of CAA 2001).

(3) So far as the claim relates to the expenditure mentioned in subsection (1)(b), the period of two years specified in section 37(7)(a) for making the claim is instead to be read as a reference to a period of 5 years.

Textual Amendments

F8 Words in s. 43(1)(b) inserted (with effect in accordance with s. 92(10) of the amending Act) by Finance Act 2013 (c. 29), s. 92(9)(a)

F9 Words in s. 43(1)(b) substituted (with effect in accordance with s. 92(10) of the amending Act) by Finance Act 2013 (c. 29), s. 92(9)(b)

44 Trade must be commercial or carried on for statutory functions U.K.

(1) Relief under section 37 is not available for a loss made in a trade unless for the loss-making period (see section 37(3)(a)) the trade is carried on—

(a) on a commercial basis, and

(b) with a view to the making of a profit in the trade or so as to afford a reasonable expectation of making such a profit.

(2) References in subsection (1)(b) to a profit in the trade include references to a profit in any larger undertaking of which the trade forms part.

(3) If during the loss-making period there is a change in the way in which the trade is carried on, it is treated as having been carried on throughout that period in the way in which it is being carried on by the end of that period.

(4) The restriction on relief under this section does not apply if the trade is a trade carried on in the exercise of functions conferred by or under an Act (including an Act of the Scottish Parliament).

Carry forward of trade loss relief U.K.

45 Carry forward of [F10 pre-1 April 2017] trade loss against subsequent trade profits U.K.

(1) This section applies if, in an accounting period [F11 beginning before 1 April 2017] , a company carrying on a trade makes a loss in the trade.

(2) Relief for the loss is given to the company under this section.

(3) The relief is given for that part of the loss for which no relief is given under section 37 or 42 (“the unrelieved loss”).

(4) For this purpose—

(a) the unrelieved loss is carried forward to subsequent accounting periods (so long as the company continues to carry on the trade), and

(b) the profits of the trade of any such period are reduced by the unrelieved loss so far as that loss [F12 is not] used under this paragraph to reduce the profits of an earlier period.

[F13 (4A) But the company may make a claim that the profits of the trade of an accounting period specified in the claim are not to be reduced by the unrelieved loss, or are not to be reduced by the unrelieved loss by more than an amount specified in the claim.

(4B) A claim under subsection (4A) may specify an accounting period only if it begins on or after 1 April 2017.

(4C) A claim under subsection (4A) is effective if, and only if, it is made—

(a) within the period of two years after the end of the accounting period specified in the claim, or

(b) within such further period as an officer of Revenue and Customs may allow.]

(5) In this section and [F14 , sections 45B, 45F and] 46 references to profits of the trade are references to profits of the trade chargeable to corporation tax.

(6) Relief under this section is subject to restriction or modification in accordance with provisions of the Corporation Tax Acts.

Textual Amendments

F10 Words in s. 45 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. 10(2)

F11 Words in s. 45(1) 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. 10(3)

F12 Words in s. 45(4)(b) substituted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 10(4)

F13 S. 45(4A)-(4C) 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. 10(5)

F14 Words in s. 45(5) substituted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 10(6)

Modifications etc. (not altering text)

C9 S. 45 applied (retrospective to 1.4.2014) by Finance Act 2014 (c. 26), Sch. 16 paras. 6, 9(1)

C10 S. 45(4) excluded (with effect in accordance with Sch. 18 para. 63 of the amending Act) by Finance Act 2016 (c. 24), Sch. 18 para. 20(10)

[F15 45A Carry forward of post-1 April 2017 trade loss against total profits U.K.

(1) This section applies if—

(a) in an accounting period (“the loss-making period”) beginning on or after 1 April 2017 a company carrying on a trade makes a loss in the trade,

(b) relief under section 37 or Part 5 (group relief) is not given for an amount of the loss (“the unrelieved amount”),

(c) the company continues to carry on the trade in the next accounting period (“the later period”), and

(d) the conditions in subsection (3) are met.

(2) But this section does not apply if the trade is a ring fence trade.

(3) The conditions are that—

(a) the trade did not become small or negligible in the loss-making period,

(b) relief under section 37 was not unavailable for the loss by reason of —

(i) section 37(5), 44, 48 or 52, or

(ii) section 1209, 1216DA, 1217DA, 1217MA, 1217SA or 1218ZDA of CTA 2009,

(c) relief under section 37 would not be unavailable by reason of section 44 for a loss (assuming there was one) made in the trade in the later period,

(d) if the company is a Solvency 2 insurance company the loss is not a shock loss (see subsections (9) and (10)), and

(e) the later period is not an excluded accounting period of a general insurance company.

(4) The unrelieved amount is carried forward to the later period.

(5) The company may make a claim for relief to be given in the later period for the unrelieved amount or for any part of it specified in the claim.

(6) If the company makes a claim, the relief is given by deducting the unrelieved amount, or the specified part of it, from the company's total profits of the later period.

(7) A claim under this section must be made—

(a) within the period of two years after the end of the later period, or

(b) within such further period as an officer of Revenue and Customs may allow.

(8) Relief under this section is subject to restriction or modification in accordance with provisions of the Corporation Tax Acts.

(9) For the purposes of this section and section 45B, a loss which is partly, but not wholly, a shock loss is to be treated as if—

(a) the amount that is a shock loss, and

(b) the amount that is not,

were separate losses.

(10) In this section—

• “excluded accounting period” has the meaning given by section 269ZG;

• “general insurance company” is to be interpreted in accordance with section 269ZG(6);

• “ring fence trade” has the same meaning as in Part 8 (see section 277);

• “Solvency 2 insurance company” means an insurance company as defined in section 269ZP(2);

• “shock loss” has the meaning given by section 269ZK.

Textual Amendments

F15 Ss. 45A-45H 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. 11

Modifications etc. (not altering text)

C11 S. 45A(4) applied by 2009 c. 4, s. 1048(4B)-(4D) (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. 133(4))

45B Carry forward of post-1 April 2017 trade loss against trade profits U.K.

(1) This section applies if—

(a) in an accounting period (“the loss-making period”) beginning on or after 1 April 2017 a company carrying on a trade makes a loss in the trade,

(b) relief under section 37 or 42 or Part 5 (group relief) is not given for an amount of the loss (“the unrelieved amount”),

(c) the company continues to carry on the trade in the next accounting period (“the later period”), and

(d) case 1, 2 or 3 applies.

• Case 1 is that any of the conditions in section 45A(3) are not met.

• Case 2 is that relief for the unrelieved amount was not available under section 45A by reason of section 1210(5), 1216DB(5) or 1217DB(5) of CTA 2009.

• Case 3 is that the trade is a ring fence trade.

(2) The unrelieved amount is carried forward to the later period.

(3) Relief for the unrelieved amount is given to the company in the later period if the company makes a profit in the trade in the later period.

(4) The relief is given by reducing the profits of the trade of the later period by the unrelieved amount.

(5) But the company may make a claim for relief not to be given in the later period for the unrelieved amount or for any part of it specified in the claim.

(6) A claim under subsection (5) is effective if, and only if, it is made—

(a) within the period of two years after the end of the later period, or

(b) within such further period as an officer of Revenue and Customs may allow.

(7) If the trade is a ring fence trade, this section has effect only in relation to so much of the loss mentioned in subsection (1)(a) as is not a non-decommissioning loss.

(8) Relief under this section is subject to restriction or modification in accordance with provisions of the Corporation Tax Acts.

(9) In this section—

• “non-decommissioning loss” is to be interpreted in accordance with section 303A;

• “ring fence trade” has the same meaning as in Part 8 (see section 277).

(10) See also section 45A(9) (splitting for the purposes of that section and this section of losses that are partly, but not wholly, shock losses of insurance companies).

Textual Amendments

F15 Ss. 45A-45H 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. 11

Modifications etc. (not altering text)

C12 S. 45B(2) applied (with effect in accordance with Sch. 4 para. 190 of the amending Act) by 2009 c. 4, s. 1048(5B)-(4D) (as inserted) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 190

45C Re-application of section 45A if loss remains after previous application U.K.

(1) This section applies if—

(a) an amount of a loss made in a trade is carried forward to an accounting period (“the later period”) of a company under section 45A(4),

(b) any of that amount is not deducted from the company's total profits of the later period on a claim under section 45A(5) or surrendered by way of group relief for carried forward-losses under Part 5A,

(c) the company continues to carry on the trade in the accounting period (“the further period”) after the later period, and

(d) the conditions in subsection (2) are met.

(2) The conditions are that—

(a) the trade did not become small or negligible in the later period,

(b) relief under section 37 would not be unavailable by reason of section 44 for a loss (assuming there was one) made in the trade in the further period, and

(c) the further period is not an excluded accounting period of a general insurance company.

(3) Subsections (4) to (8) of section 45A apply as if—

(a) references to the unrelieved amount were to so much of the amount carried forward to the later period as is not deducted or surrendered as mentioned in subsection (1)(b), and

(b) references to the later period were to the further period.

(4) In this section “excluded accounting period” and “general insurance company” have the same meaning as in section 45A.

Textual Amendments

F15 Ss. 45A-45H 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. 11

45D Application of section 45B if loss remains after application of section 45A U.K.

(1) This section applies if—

(a) an amount of a loss made in a trade is carried forward to an accounting period (“the later period”) of a company under section 45A(4),

(b) any of that amount is not deducted from the company's total profits of the later period on a claim under section 45A(5) or surrendered by way of group relief for carried forward-losses under Part 5A,

(c) the company continues to carry on the trade in the accounting period (“the further period”) after the later period, and

(d) any of the conditions in section 45C(2) is not met.

(2) Subsections (2) to (8) of section 45B apply as if—

(a) references to the unrelieved amount were to so much of the amount carried forward to the later period as is not deducted or surrendered as mentioned in subsection (1)(b), and

(b) references to the later period were to the further period.

Textual Amendments

F15 Ss. 45A-45H 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. 11

45E Re-application of section 45B if loss remains after previous application U.K.

(1) This section applies if—

(a) an amount of a loss made in a trade is carried forward to an accounting period (“the later period”) of a company under section 45B(2),

(b) any of that amount is not used under section 45B(4) to reduce profits of the trade for the later period, and

(c) the company continues to carry on the trade in the accounting period (“the further period”) after the later period.

(2) Subsections (2) to (8) of section 45B apply as if—

(a) references to the unrelieved amount were to so much of the amount carried forward to the later period as was not used as mentioned in subsection (1)(b), and

(b) references to the later period were to the further period.

Textual Amendments

F15 Ss. 45A-45H 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. 11

45F Terminal losses: relief unrestricted by Part 7ZA and 7A U.K.

(1) This section applies if—

(a) a company makes a loss in a trade in an accounting period (the “loss-making period”),

(b) an amount of that loss is carried forward to an accounting period of the company (“the terminal period”) under section 45, 45A or 45B,

(c) relief in the terminal period is not given under section 45, 45A or (as the case may be) 45B for that amount or for any part of it, and

(d) the company ceases to carry on the trade in the terminal period.

(2) The company may make a claim for relief to be given for the unrelieved amount under this section.

(3) If the company makes a claim the relief is given by deducting the unrelieved amount from the relevant profits of the company of—

(a) the terminal period, and

(b) previous accounting periods so far as they fall (wholly or partly) within the period of 3 years ending with the end of the terminal period.

(4) But no deduction is to be made under subsection (3) for any accounting period which is—

(a) the loss-making period,

(b) a period before the loss-making period, or

(c) a period beginning before 1 April 2017.

(5) The amount of a deduction to be made under subsection (3) for any accounting period is the amount of the unrelieved amount so far as it cannot be deducted under that subsection for a subsequent accounting period.

(6) The company's claim must be made—

(a) within the period of two years after the end of the terminal period, or

(b) within such further period as an officer of Revenue and Customs may allow.

(7) In this section—

• “the unrelieved amount” means so much of the amount mentioned in subsection (1)(b) for which relief is not given in the terminal period under section 45, 45A or (as the case may be) 45B, and

• “relevant profits”, in relation to the terminal period or any previous accounting period, means—

  (a)

  the total profits of the company of the period, in a case where the unrelieved amount was carried forward to the terminal period under section 45A,

  (b)

  the profits of the trade of the period, in a case where the unrelieved amount was carried forward to the terminal period under section 45 or 45B.

(8) Relief under this section is subject to restriction or modification in accordance with provisions of the Corporation Tax Acts.

Textual Amendments

F15 Ss. 45A-45H 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. 11

[F16 45G Section 45F: accounting period falling partly within 3 year period U.K.

(1) This section applies if—

(a) a company ceases to carry on a trade in an accounting period (“the terminal period”), and

(b) a previous accounting period of the company (“the straddling period”) falls partly within the period of 3 years ending with the end of the terminal period.

(2) The sum of any deductions under section 45F from the profits of the trade of the straddling period is not to exceed an amount equal to the overlapping proportion of those profits (calculated before making those deductions).

(3) The sum of—

(a) any deductions under section 45F from the profits of the trade of the straddling period, and

(b) any deductions under that section from the total profits of the straddling period in respect of losses made in the trade,

must not exceed an amount equal to the overlapping proportion of the total profits of the straddling period (calculated before making those deductions).

(4) The overlapping proportion is the same as the proportion that the part of the straddling period falling within the period of 3 years mentioned in subsection (1)(b) bears to the whole of the straddling period.]

Textual Amendments

F15 Ss. 45A-45H 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. 11

F16 S. 45G substituted (with effect in accordance with Sch. 10 para. 32 of the amending Act) by Finance Act 2019 (c. 1), Sch. 10 para. 21

45H Section 45F: transfers of trade to obtain relief U.K.

Section 45F does not apply by reason of a company ceasing to carry on a trade if—

(a) on the company ceasing to carry on the trade, any of the activities of the trade begin to be carried on by a person who is not (or by persons any or all of whom are not) within the charge to corporation tax, and

(b) the company's ceasing to carry on the trade is part of a scheme or arrangement the main purpose, or one of the main purposes, of which is to secure that that section applies by reason of the cessation.]

Textual Amendments

F15 Ss. 45A-45H 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. 11

46 Use of trade-related interest and dividends if insufficient trade profits U.K.

[F17 (1) This section applies if in an accounting period a company carrying on a trade makes a loss in the trade and either—

(a) relief for the loss could be given in a later accounting period under section 45(4)(b) or 45B(4) but for the fact that there are no profits of the trade of the later accounting period, or

(b) the amount of relief for the loss that could be given in a later accounting period under section 45(4)(b) or 45B(4) is limited by reason of the amount of profits of the trade of the later accounting period.]

(2) [F18 For the purposes of section 45 and 45B,] Treat any interest or dividends within subsection (3) as profits of the trade of the later period.

(3) Interest or dividends are within this subsection if they—

(a) are from investments, and

(b) would be brought into account as trading receipts in calculating the profits of the trade of the later period but for the fact that they have been subjected to tax under other provisions of the Tax Acts.

Textual Amendments

F17 S. 46(1) substituted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 148(2)

F18 Words in s. 46(2) 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. 148(3)

47 [F19 Registered societies] U.K.

(1) This section applies for the purposes of [F20 sections 45 and 45B] if the company carrying on the trade is a [F21 registered society] .

(2) The following amounts may be brought into account in calculating the profits of the trade—

(a) amounts to which the charge to corporation tax on income applies under section 299 of CTA 2009 (charge to tax on non-trading profits from loan relationships), and

(b) amounts arising from possessions out of the United Kingdom to which the charge to corporation tax on income applies under section 933 of CTA 2009 (dividends of non-UK resident company) or under section 974 of that Act (income arising from foreign holdings).

Textual Amendments

F19 S. 47 heading substituted (1.8.2014) by Co-operative and Community Benefit Societies Act 2014 (c. 14), s. 154, Sch. 4 para. 157 (with Sch. 5)

F20 Words in s. 47(1) substituted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 149

F21 Words in Act substituted (1.8.2014) by Co-operative and Community Benefit Societies Act 2014 (c. 14), Sch. 4 para. 156 (with Sch. 5)

Restrictions on relief: farming or market gardening U.K.

48 Farming or market gardening U.K.

(1) This section applies if a loss is made in a trade of farming or market gardening in an accounting period (“the current period”).

(2) Relief under section 37 is not available for the loss if a loss, calculated without regard to capital allowances, was made in the trade—

(a) in the current period, and

(b) in each accounting period falling wholly or partly within the period of 5 years (“the prior 5 years”) ending immediately before the current period begins.

(3) But this section does not prevent relief for the loss from being available if—

(a) the carrying on of the trade forms part of, and is ancillary to, a larger trading undertaking,

(b) the farming or market gardening activities meet the reasonable expectation of profit test (see section 49), or

(c) the trade was started, or treated as started, during the prior 5 years (see section 50).

(4) A loss in a trade is calculated without regard to capital allowances by ignoring—

(a) the allowances treated as expenses of the trade under CAA 2001, and

(b) the charges treated as receipts of the trade under CAA 2001.

49 Reasonable expectation of profit U.K.

(1) This section explains how the farming or market gardening activities (“the activities”) meet the reasonable expectation of profit test for the purposes of section 48(3)(b).

(2) The test is decided by reference to the expectations of a competent farmer or market gardener (a “competent person”) carrying on the activities.

(3) The test is met if—

(a) a competent person carrying on the activities in the year (“the current year”) after the prior 5 years would reasonably expect future profits (see subsection (4)), but

(b) a competent person carrying on the activities at the start of the prior period of loss (see subsection (5)) could not reasonably have expected the activities to become profitable until after the end of the current year.

(4) In determining whether a competent person carrying on the activities in the current year would reasonably expect future profits, regard must be had to—

(a) the nature of the whole of the activities, and

(b) the way in which the whole of the activities were carried on in the current year.

(5) “The prior period of loss” means—

(a) the prior 5 years, or

(b) if subsection (6) applies, the period made up of the successive accounting periods taken together as mentioned in that subsection.

(6) This subsection applies if—

(a) losses in the trade, calculated without regard to capital allowances (see section 48(4)), were made in successive accounting periods before the current year, and

(b) taken together those accounting periods amount to a period of more than 5 years ending at the end of the prior 5 years.

50 Cessation of trades U.K.

(1) For the purposes of section 48(3)(c) a trade is to be treated as ceased, and a new trade as started, in any of the following cases—

• Case 1

  A company starts or ceases to be within the charge to corporation tax in respect of a trade.

• Case 2

  There is a change in the persons carrying on a trade which involves all of the persons carrying it on before the change permanently ceasing to carry it on.

• Case 3

  There is a change in the persons carrying on a trade and—

  (a)

  immediately before the change, the trade is carried on by persons who include a company, and

  (b)

  after the change, no company that carried on the trade in partnership immediately before the change continues to carry it on in partnership.

• Case 4

  There is a change in the persons carrying on a trade and—

  (a)

  immediately before the change, no company carries on the trade in partnership, and

  (b)

  immediately after the change, the trade is carried on in partnership by persons who include a company.

(2) Subsection (1) is subject to subsections (3) and (4).

(3) A trade is not to be treated as ceased if the change in the persons carrying on the trade is a transfer to which Chapter 1 of Part 22 applies (transfers of trade without a change of ownership).

(4) In determining if there is a change in the persons carrying on a trade, subsection (1) is subject to the following rules—

• Rule 1

  A husband and wife are treated as the same person.

• Rule 2

  Individuals who are civil partners of each other are treated as the same person.

• Rule 3

  A husband or wife is treated as the same person as—

  (a)

  a company of which either of them has control, or

  (b)

  a company of which both have control.

• Rule 4

  An individual's civil partner is treated as the same person as—

  (a)

  a company of which either of the civil partners has control, or

  (b)

  a company of which both have control.

(5) In subsection (4) “control” has the same meaning as in section 450.

51 Companies treated as same person as individual U.K.

(1) This section applies for the purposes of sections 48(2) and 49(6) if, as a result of section 50(4), a company is treated as the same person as an individual.

(2) A loss in an accounting period may be determined by reference to profits and losses made by the individual in the trade in tax years (within the meaning of the Income Tax Acts).

(3) For this purpose—

(a) profits and losses made by the individual in tax years may be allocated (in whole or in part) to accounting periods in a way that is just and reasonable, and

(b) if a tax year or part of a tax year is not covered by any accounting period—

(i) the period covered by the tax year or part may be treated as if it were an accounting period, and

(ii) in accordance with paragraph (a), profits and losses may be allocated to it.

(4) Section 70(2), (3)(a), (4)(a) and (5) of ITA 2007 applies for the purpose of determining the individual's profits and losses in the trade for tax years.

Restrictions on relief: commodity futures U.K.

52 Dealings in commodity futures U.K.

(1) This section applies if—

(a) a company makes a loss in a trade of dealing in commodity futures,

(b) the company carried on the trade as a partner in a partnership, and

(c) a scheme has been effected or arrangements within subsection (3) have been made (whether by the partnership agreement or otherwise).

(2) Relief under section 37 is not available for the loss.

(3) Arrangements are within this subsection if as a result of them the sole or main benefit that might be expected to arise to the company from the company's interest in the partnership is the obtaining of a reduction in tax liability by means of relief under section 37.

(4) If relief is given in a case to which this section applies, the relief is withdrawn by the making of an assessment to corporation tax under this section.

(5) “Commodity futures” means commodity futures that are for the time being dealt in on a recognised futures exchange (as defined in section 288(6) of TCGA 1992).

Other restrictions on relief U.K.

53 Leasing contracts and company reconstructions U.K.

(1) This section applies if—

(a) under a contract a company (“the leasing company”) incurs capital expenditure on the provision of plant or machinery,

(b) the leasing company lets that plant or machinery to another person under another contract (“the leasing contract”),

(c) a first-year allowance (within the meaning of Part 2 of CAA 2001) in relation to the capital expenditure is made to the leasing company for an accounting period (“the allowance period”),

(d) arrangements within subsection (3) are in place in the allowance period, and

(e) apart from this section, relief under section 37 [F22 , 45, 45A or 45B] would be available to the leasing company in relation to losses made on the leasing contract.

(2) In the allowance period and any subsequent accounting period, no relief is available to the leasing company as mentioned in subsection (1)(e) except against profits (if any) arising under the leasing contract.

(3) Arrangements are within this subsection if, as a result of them, a successor company will be able to carry on, at some time during or after the allowance period, any part of the leasing company's trade which includes the performance of all or any of the obligations which (apart from the arrangements) would be the leasing company's obligations under the leasing contract.

(4) A company (“company S”) is a successor company if—

(a) Chapter 1 of Part 22 applies in relation to the leasing company and company S as, respectively, the predecessor and the successor within the meaning of that Chapter, or

(b) the leasing company and company S are connected with each other.

(5) “Arrangements” means arrangements of any kind (whether or not in writing).

(6) For the purposes of this section, calculate losses made on the leasing contract and profits arising under that contract as if—

(a) the performance of that contract were a trade carried on by the leasing company separately from any other trade carried on by it, and

(b) the leasing company started carrying on that separate trade at the commencement of the letting under that contract.

(7) In determining if relief is available to the leasing company as mentioned in subsection (1)(e), any losses made on the leasing contract are treated as made in a trade carried on by the leasing company separately from any other trade carried on by it.

Textual Amendments

F22 Words in s. 53(1)(e) substituted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 150

54 Non-UK resident company: receipts of interest, dividends or royalties U.K.

(1) This section applies if—

(a) a non-UK resident company carries on a trade in the United Kingdom, and

(b) tax-exempt receipts of interest, dividends or royalties arise to the company.

(2) The receipts are not to be excluded from the profits of the trade so as to give rise to a loss to be deducted under [F23 section 37 [F24 , 45, 45A or 45B]] .

(3) For the purposes of subsection (1) a receipt is “tax-exempt” if it has been treated as tax-exempt under arrangements having effect under section 2 of TIOPA 2010.

Textual Amendments

F23 Words in s. 54(2) substituted (17.7.2012) by Finance Act 2012 (c. 14), Sch. 16 para. 217

F24 Words in s. 54(2) substituted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 151