Corporation Tax

Under current rules up to 100% of chargeable gains can be set against carried-forward capital losses. For accounting periods ending on or after 1 April 2020, large companies and unincorporated associations who accrue chargeable capital gains will only be able to offset up to 50% of those gains using carried-forward allowable (capital) losses. The measure is subject to anti-avoidance rules that took effect from 29 October 2018.

There will be an allowance that means the first £5 million of profits can be offset with carried-forward losses before the 50% restriction is applied. This allowance is in tandem with the Corporate Income Loss Restriction (CILR). This will ensure that over 99% of companies are unaffected by the restriction. The new measure is expected to impact about 200 corporates each year who will pay additional tax as a result of this measure.

These rules are in line with the CILR for carried forward income losses that was introduced in 2017 and the new capital losses rules effectively mirror the income losses rules. Transitional rules will apply to companies with accounting periods that straddle the 1 April 2020 implementation date.

Under qualifying circumstances, Corporation Tax (CT) relief is available where your company makes a trading loss. The trading loss can be used by offsetting the loss against other gains or profits of your business in the same or previous accounting period. The loss can also be set against future qualifying trading income.

However, there are restrictions on ‘loss-buying’. This describes the situation where a person buys a trading company wholly or partly for its unused trading losses rather than solely for the inherent value of its trade or assets. The new owner usually introduces new activity into the company to try to keep its entitlement to relief for losses.

The legislation governing this area can result in all the company’s unused carried- forward trading losses being cancelled where either:

• within any specified period, there is both; a change in the ownership of a company, and a major change in the nature or conduct of a trade carried on by the company,

or

• there is a change in ownership of a company at a time when the scale of its trading activities has become small or negligible.

For accounting periods beginning on or after 1 April 2017, the specified period is 5 years beginning no more than 3 years before the change in ownership occurs.

Under the current rules non-resident companies with a trading business in the UK are liable to pay UK Corporation Tax on their profits made through a permanent establishment/branch or agency. This includes trading income and any income from property or rights used by, or held by or for, the permanent establishment/branch or agency (except dividends or other distributions received from companies resident in the UK) as well as certain chargeable gains falling within TCGA92/S10B.

There are a number of differences in the taxation of non-resident companies as opposed to resident companies. For example, a non-resident company:

• is not liable to account for ACT on distributions made before to 6 April 1999,
• cannot have 'franked investment income',
• cannot have surplus franked investment income for the purposes of ICTA88/S242,
• cannot set trading losses against dividend income to augment its trading income for the purposes of absorbing losses brought forward.

Any UK-source income received by a non-resident company which does not carry on a trade in the UK through a permanent establishment/branch or agency is subject to UK Income Tax on any UK-source income. Any Income Tax due is calculated at the basic rate only without any allowances, subject to any applicable Double Taxation Agreement. It is expected that corporate landlords will become subject to Corporation Tax on their income and gains from 6 April 2020.

The Company Unique Taxpayer References (UTR) is the primary identifier for the company and should be used whenever HMRC is contacted and when tax returns are filed.

When a new limited company is registered, Companies House will inform HMRC of the new company and a UTR (ten-digit number) will be issued. HMRC will then issue a letter to the company's registered address outlining important information about registering the company online for Corporation Tax and filing Company Tax Returns.

The letter, which will be sent to the companies registered address, will also contain the company’s ten-digit UTR. The number can also be found on other documents issued by HMRC such as form CT603 ‘Notice to deliver a company Tax Return’, Depending on the type of document issued the reference may be printed next to the headings 'Tax Reference', 'UTR' or 'Official Use'.

It is possible to locate a company UTR by making a request online at https://www.tax.service.gov.uk/ask-for-copy-of-your-corporation-tax-utr.

HMRC will send the number by post to the company’s registered address as shown at Companies House.

Corporation Tax relief may be available when a company or organisation makes a trading loss. Companies that are eligible for Group Relief can transfer losses and certain other deficits to companies within the same group by means of Group or Consortium Relief. The use of Group Relief allows losses arising in the accounting period to be surrendered to a group company for that period. In addition, losses that arose on or after 1 April 2017 and are carried forward to a later accounting period may be surrendered as Group Relief for carried-forward losses.

Companies attempting to either surrender or claim losses for Group Relief or Group Relief for carried forward losses must meet the required conditions.  For companies to be members of the same group, one company must be a 75% subsidiary of the other, or both must be 75% subsidiaries of a third company. The definition of '75% subsidiary' requires one company to have direct or indirect beneficial ownership of at least 75% of the ordinary share capital in another. There are also further qualifying tests that may apply for Group Relief purposes.

There are special rules for the pre-trading expenses of a rental business. If the expenses were in relation to a letting, then a deduction may be allowed where the following conditions are met:

• The expenditure is incurred within a period of seven years before the date the rental business is started, and
• The expenditure is not otherwise allowable as a deduction for tax purposes, and
• The expenditure would have been allowed as a deduction if it had been incurred after the rental business started.

This means that, to be allowable, the expenditure must be incurred wholly and exclusively for the purposes of the rental business and must not be capital expenditure. HMRC gives the example whereby rent paid to lease the first rental business property could be allowable under these special rules if it is due before the property is first let, provided the property was acquired solely for the purposes of the rental business.

However, no relief would be allowed where pre-trading expenses were not incurred wholly and exclusively for the purposes of the rental business. Capital expenditure does not qualify for relief but there are also other special rules for capital allowances. Qualifying pre-commencement expenditure is treated as incurred on the day on which the customer first carries on their rental business.

Non-resident companies with a trading business in the UK are liable to pay UK Corporation Tax on their profits made through a permanent establishment/branch or agency.

If the non-resident company is deemed liable to pay Corporation Tax, then its chargeable profits are:

• any trading income arising directly or indirectly through or from the permanent establishment/branch or agency,
• any income from property or rights used by, or held by or for, the permanent establishment/branch or agency except dividends or other distributions received from companies resident in the UK, and
• chargeable gains falling within TCGA92/S10B.

There are, however, some differences in the taxation of non-resident companies as opposed to resident companies. For example, a non-resident company:

• is not liable to account for ACT on distributions made before to 6 April 1999,
• cannot have 'franked investment income',
• cannot have surplus franked investment income for the purposes of ICTA88/S242,
• cannot set trading losses against dividend income to augment its trading income for the purposes of absorbing losses brought forward.

Any UK-source income received by a non-resident company which does not carry on a trade in the UK through a permanent establishment/branch or agency is subject to UK Income Tax. Any Income Tax due is calculated at the basic rate only without any allowances, subject to any applicable Double Taxation Agreement.

Where a property business makes a loss, the loss can usually be carried forward and set against future rental business profits.

HMRC’s guidance is clear that any losses made in one rental business, cannot be carried across to any other rental business the customer carries on at the same time in a different legal capacity.

There is no special claim required to carry forward the losses and the losses can be carried forward indefinitely until full relief for the losses can be given.

Under some limited circumstances, the property losses can be set against general income of the same year or the following year. However, where a property business claims loss relief against general income, they must take the full amount of the loss available up to the amount of their general income.

There are exceptions to the loss relief rules for properties that are let on uncommercial terms (for example, at a nominal rent to a relative).

There are different rules which apply to different types of capital expenditure for a property business. One of the main areas to consider in deciding whether a repair is a deductible expense is whether it is revenue or capital. Capital expenditure cannot be deducted in computing the profits of a property business, however there are separate reliefs for some capital expenditure.

The cost of land and buildings is capital expenditure, this includes the cost of any new buildings erected after letting has started and any improvements. 

HMRC also list the following additional examples of capital expenses:

• expenditure which adds to or improves the land or property; for example, converting a disused barn to a holiday home,


• the cost of refurbishing or repairing a property bought in a derelict or run-down state,


• expenditure on demolishing a derelict factory to clear space for a new office building; the cost of the new building,


• the cost of building a car park next to a property that is let,


• expenditure on a new access road to a property,


• the cost of a new piece of land next to a property that is let.

In general repairs and trivial capital improvements (incidental to a repair) are usually categorised as revenue expenditure. However, the devil can be in the detail and careful consideration must be given to specific expenses. For example, alterations due to advancements in technology are generally treated as an allowable repair rather than an improvement such as replacing single glazing on windows with double glazing.

Corporation Tax relief may be available where your company or organisation makes a trading loss. The loss may be used to claim relief from Corporation Tax by offsetting the loss against other gains or profits of the business in the same or previous accounting period.

The loss can also be set against future qualifying trading income. Any claim for trading losses forms part of the Company Tax Return. The trading profit or loss for Corporation Tax purposes is worked out by making the usual tax adjustments to the figure of profit or loss shown in your company or organisation’s financial accounts.

Some of the basic requirements for a trade loss to be set off against other income sources include: 

• being within the charge to Corporation Tax 


• the trade must be carried on a commercial basis and with a view to the realisation of profit 


• at least some of the trade must be carried out within the UK

The rules for the Corporation Tax treatment of carried forward losses changed from 1 April 2017. The changes increased flexibility to set off carried forward losses against total profits of the same company or another company in a group whilst at the same time introduced new restrictions as to the amount of profits against which carried forward losses can be set. Any losses carried forward prior to 1 April 2017 fall under the old loss relief rules and must be handled accordingly.