Budget 2016: Loss carry forward reform for corporation tax purposes


Andy Wood

Andy is a practical, creative tax adviser who assists a variety of clients in achieving their personal and commercial objectives in the most tax efficient manner.

The Budget set out plans to relax the manner in which carry forward losses may be offset against profits for corporation tax purposes.

Under these new rules, a company will be able to offset these losses from earlier periods by way of group relief. There will also be an easing of the restrictions on the types of profits against which such losses may be offset

However, this is the Budget and every silver cloud has a grey lining.

At present, there is no limit on the quantum of profits against which a company may offset carried forward losses.  Under the new rules, and where profits are in excess of £5,000,000, a Company will only be capable of utilising 50% of these losses.

The new rules will only apply to losses which have been incurred on or after 1 April 2017.

This means that a Company’s losses have not become more valuable overnight.  However, on the other hand, the new 50% restriction applies to profits arising on or after 1 April 2017. It will apply to all losses carried forward and offset against profits which have arisen after the commencement date.  Therefore, the changes do make existing carry forward losses at this date less valuable.

It is important to note that these proposals are subject to consultation. As such, these rules may, and are likely, to change between now and their formal publication.

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