Corporation Tax Bill

House of Commons

Session 2009 - 10
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Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 4 — Loss relief
Chapter 2 — Trade losses
26

(7)
If, for an accounting period, deductions under subsection (3) are to be made for
losses for 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,
5
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.
43
Claim period in case of ring fence or mineral extraction trades
(1)
This section applies in relation to a claim under section 37 if—
10
(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
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(b)
as a result of section 416 of CAA 2001 (expenditure on restoration
within 3 years of ceasing to carry on mineral extraction trade) 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
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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
25
to be read as a reference to a period of 5 years.
44
Trade must be commercial or carried on for statutory functions
(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
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(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
35
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).
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Corporation Tax Bill
Part 4 — Loss relief
Chapter 2 — Trade losses
27

Carry forward of trade loss relief
45
Carry forward of trade loss against subsequent trade profits
(1)
This section applies if, in an accounting period, 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.
5
(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
10
(b)
the profits of the trade of any such period are reduced by the unrelieved
loss so far as that loss cannot be used under this paragraph to reduce
the profits of an earlier period.
(5)
In this section and section 46 references to profits of the trade are references to
profits of the trade chargeable to corporation tax.
15
(6)
Relief under this section is subject to restriction or modification in accordance
with provisions of the Corporation Tax Acts.
46
Use of trade-related interest and dividends if insufficient trade profits
(1)
This section applies for the purposes of section 45 if—
(a)
the company carries on the trade in an accounting period (“the later
20
period”), and
(b)
relief cannot be fully given in the later period for the unrelieved loss (or
for that loss so far as it cannot be relieved in earlier periods) because
there are no profits, or insufficient profits, of the trade of the later
period.
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(2)
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
30
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.
47
Registered industrial and provident societies
(1)
This section applies for the purposes of section 45 if the company carrying on
the trade is a registered industrial and provident society.
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(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
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(b)
amounts arising from possessions out of the United Kingdom to which
the charge to corporation tax on income applies under section 933 of

Corporation Tax Bill
Part 4 — Loss relief
Chapter 2 — Trade losses
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CTA 2009 (dividends of non-UK resident company) or under section
974 of that Act (income arising from foreign holdings).
Restrictions on relief: farming or market gardening
48
Farming or market gardening
(1)
This section applies if a loss is made in a trade of farming or market gardening
5
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
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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,
15
(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
20
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.
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Reasonable expectation of profit
(1)
This section explains how the farming or market gardening activities (“the
25
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—
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(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
35
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
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current year.
(5)
“The prior period of loss” means—
(a)
the prior 5 years, or

Corporation Tax Bill
Part 4 — Loss relief
Chapter 2 — Trade losses
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(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
5
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.
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Cessation of trades
(1)
For the purposes of section 48(3)(c) a trade is to be treated as ceased, and a new
10
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
15

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
20
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—
25
(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).
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(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—
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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
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A husband or wife is treated as the same person as—

Corporation Tax Bill
Part 4 — Loss relief
Chapter 2 — Trade losses
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(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
5
(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
(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.
10
(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
15
(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
20
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.
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Restrictions on relief: commodity futures
52
Dealings in commodity futures
(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
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(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
35
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.

Corporation Tax Bill
Part 4 — Loss relief
Chapter 2 — Trade losses
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(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
53
Leasing contracts and company reconstructions
5
(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”),
10
(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
15
(e)
apart from this section, relief under section 37 or 45 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
20
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
25
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
30
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—
35
(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
40
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.