HMRC has published guidance for companies to work out and claim relief from corporation tax on terminal losses, capital losses and property income losses
Companies can get tax relief by offsetting the loss against their other gains or profits of their business in the same accounting period. They can also choose to carry the loss back, or it will be carried forward to another accounting period.
Terminal loss relief allows companies to carry back any trading losses that occur in the final 12 months of a trade and set them off against profits made in any or all of the three years up to the period when they made the loss.
From 1 April 2017, if a company or organisation stops trading, it may be able to claim terminal loss relief for carried forward losses of that trade. This is not subject to the restrictions on amounts that can be relieved using carried forward losses in periods from 1 April 2017.
Losses that can be used are trade losses carried forward to the final accounting period when the trade ceased. These losses can be used to reduce profits of the final accounting period, or for earlier periods up to three years before the end of the final accounting period.
Terminal relief for losses of the final 12 months of a trade must be claimed within two years of the end of the accounting period when the company made the loss. Terminal relief for carried-forward losses of a trade must be claimed within two years of the end of the accounting period in which trading stopped.
HMRC advises that capital losses are treated differently from trading losses and cannot be offset against trading income. Allowable capital losses are set off automatically.
Separate rules apply to losses on property income. These losses must be offset against other profits in the same accounting period and cannot be carried back to be offset against profits from earlier accounting periods. They can be carried forward and offset against other profits in the next accounting period if it cannot be used in the same period and has not been used as group relief, as long as the property business is still being carried on in that accounting period.
The rules for allowing relief for losses of a UK property income business carried forward to the next accounting period changed from 1 April 2017. How relief is given depends on when the losses arose. The guidance provides further details on this.
Guidance Corporation Tax: terminal, capital and property income losses is here.
Report by Pat Sweet
