The Finance Act 2017 (number two) is expected to be published in November and it will introduce new rules regarding Corporation Tax losses.
Losses arising from 1 April 2017
Trading losses, non trading loan relationship deficits, property losses and excess expenses of management arising on or after 1 April 2017 that cannot be utilised in the current year can be carried forward and offset against any profits arising in the company in future years and potentially group relieved too.
This flexibility DOES NOT apply to capital losses.
Losses arising pre 1 April 2017
Any existing losses carried forward will remain subject to the previous rules:
- Trading losses carried forward and offset against the first available profits of the same trade
- Non trading loan relationship deficits carried forward and offset against non trade profits (don't forget that for this type of loss you can elect to skip a year so this may come in handy if the group/ standalone company is subject to the restriction as detailed below)
- UK Property losses carried forward and offset against total profits
- Excess expenses of management carried forward and offset against total profits
ALL brought forward losses utilised after 1 April 2017, regardless of when they were incurred, will be subject to a £5m annual allowance and this is per GROUP.
This means that a group/standalone company can offset brought forward losses against profits up to £5m before the restriction takes effect. Any further brought forward loss utilisation will be subject to a 50% restriction. So a group/standalone company with brought forward losses of £10m and current year profits of £10m will only be entitled to offset £7.5m of brought forward losses.
How will this affect my company?
All companies will benefit from more flexibility surrounding corporate losses.
Any group/standalone company with losses in excess of £5m as at 1 April 2017 (or going forward) and also anticipate profits in excess of £5m should expect to apply this restriction.
With a falling tax rate, it is again important to consider carrying back losses where possible to obtain relief at higher tax rates and utilise losses falling prior to 1 April 2017 backwards if you believe the loss restriction may apply.