HMRC has launched a consultation Reforms to corporation tax loss relief: consultation on delivery, following the announcement at Budget 2016 that companies will be able to use trading losses brought forward more flexibly in the future

It is proposed that when losses arising after 1 April 2017 are carried forward:

  • They can be set off against other profits, including non-trading profits such as property profits.
  • They can be surrendered to other group companies and set off against trading and non-trading profits.

It is also proposed that:

  • Similar flexibility will be introduced for non-trading losses and loan-relationship deficits.
  • Capital losses will be ring fenced so they can only be relieved against chargeable gains.
  • Existing rules restricting the use of losses where there has been a major change in the nature or conduct of trade will remain in place.
  • Where annual "group" profits exceed £5 million, only 50% of the excess can be relieved by carried forward losses.
  • A new definition of "group" will be written in respect of this £5 million allowance.  It is likely to be based on common control so as to include all companies under the same economic ownership.

The consultation document includes detail as to how the £5 million allowance will be applied and how in year and brought forward losses will interact.  A number of worked examples are also included.

The consultation, Reforms to corporation tax loss relief: consultation on delivery, opened on 26 May 2016 and will close on 18 August 2016.  Draft legislation is expected to be published at Autumn Statement 2016 and included in the 2017 Finance Bill.