Reform of corporation tax loss relief: further draft legislation

The Government has released further draft legislation for inclusion in the Finance Act 2017 dealing with the changes to relief for carried forward losses. The legislation will provide more flexibility on the use of carried forward corporate losses incurred from April 2017 but will restrict the amount of carried-forward losses that can be set against profits in later years.

Background

At Budget 2016, the Government announced that it would introduce reforms to the UK loss relief regime designed to provide more flexibility on how carried forward losses can be used, while also restricting the amount of carried forward losses that can be utilised. In May 2016, a consultation document setting out details of the proposals was released. The consultation document, “Reform to corporation tax loss relief: consultation on delivery”, proposed that losses carried forward which arise from 01 April 2017 should be available to be set against any profits of the company carrying forward those losses and also within that company’s group. However, the Government also proposed that there should be a restriction on the use of such losses, such that only 50% of profits can be relieved through the use of such losses (subject to a £5m group allowance).

In December 2016, the Government released a consultation response document confirming that it would take forward these changes with effect from 01 April 2017 and released partial draft legislation. For more details, see “Reform of corporation tax loss relief”.

Further draft legislation

The Government has now released further draft legislation for inclusion in the Finance Bill together with explanatory notes.

The additional draft legislation now includes provisions dealing with the following measures:

• Application of the rules to companies in consortiums: the rules will allow consortium companies to surrender or claim post-April 2017 carried forward losses from members of the consortium according to the member’s interest in the consortium company in the accounting period in which the loss arose. Accordingly, the maximum losses a member of a consortium can claim will be capped at the entitlement it had in the period the loss arose.
• A new anti-avoidance rule which applies where there is a "loss-related tax advantage" from arrangements which have a main purpose of obtaining a loss-related tax advantage and which are designed to circumvent the limits of the legislation or exploit any shortcomings in the rules.
• Legislation relevant to the application of the rules to specific entities (such as insurance companies and REITs) and specific situations (such as certain creative industries).

Comments

Comments on the revised draft legislation are required by 23 February 2017 and should be sent to: claire.white@hmrc.gsi.gov.uk or clare.e.dunne@hmrc.gsi.gov.uk