TAXguide 01/19: Corporate losses – a practical guide to the Finance (No 2) Act rules
In TAXguide 01/19 Pete Miller explains the new relaxation to the rules for carried forward losses. This guidance covers trading losses, non-trading loan relationship deficits, non-trading losses on intangible fixed assets, expenses of management and UK property business losses.
The UK tax system has always operated on a schedular system, with profits from each type of source - such as trading or income from property - being computed separately, each with its own set of rules. Similarly, losses arising in any such businesses or activities were generally only available to use against future profits or income from the same or a similar source, when carried forward. Of course losses of a taxable period could often be set off against profits of any other income or activity in that period. Similarly, it was often possible to carry back certain types of loss to taxable periods for use against all profits and income of the earlier periods. In the main, however, the regime for carried forward losses was extremely inflexible.
The changes that took effect from 1 April 2017 therefore represent a sea change in the way in which companies can use their losses, as the policy intention is that, in the vast majority of cases, any losses arising in a company accounting period will be available to set off against future profits of that company of any kind, subject to some important exceptions.