It has long baffled many business owners as to how their company can have tax to pay on bank interest when the company has brought forward trading losses. This all stems from the different rules which apply to tax losses, depending on the source of the loss. Within any one year, a loss from one source can be set against a profit from another source of income. But beyond that, when you want to carry losses back or forward, there are some restrictions depending on the type of loss.
This will all soon change. In May HMRC published a consultation paper on reforming the loss regime for corporation tax. Two broad changes are proposed from 1 April 2017:
1. Losses arising from 1 April 2017 will be carried forward and will be capable of being set against the taxable profits from any source within a company and the taxable profits of its group members;
2. The amount of annual profit that can be relieved by carried-forward losses will be limited to 50% from 1 April 2017, subject to an allowance of £5 million per group. There will be no limit on losses carried back. Most companies will not be affected by this restriction.
The consultation is open until 18 August 2016 and we can expect legislation to be included in the 2017 Finance Bill.
The changes apply to revenue losses, that is: trading losses, non-trading loan relationship deficits, UK property losses, management expenses and non-trading losses on intangible fixed assets. Capital losses are not included in the reforms.
If you would like more information on the reforms please contact Mark Wildi on 01689 877081.