Corporation Tax Act 2010

Chapter 2 U.K. Disallowance of trading losses

673 Introduction to Chapter U.K.

(1) This Chapter applies if—

(a) there is a change in the ownership of a company (“the company”), and

(b) condition A or B is met.

(2) Condition A is that within any period [F1 beginning no more than 3 years before the change in ownership occurs which is a period of 5 years in which that change] occurs there is a major change in the nature or conduct of a trade carried on by the company.

(3) Condition B is that the change in ownership occurs at any time after the scale of the activities in a trade carried on by the company has become small or negligible and before any significant revival of the trade.

(4) In this section “major change in the nature or conduct of a trade” includes—

(a) a major change in the type of property dealt in, or services or facilities provided in, the trade, or

(b) a major change in customers, outlets or markets of the trade.

This Chapter applies even if the change is the result of a gradual process which began before the period of [F2 5] years mentioned in subsection (2).

(5) In this Chapter—

• “the change in ownership” means the change in ownership mentioned in subsection (1),

• “the company” has the same meaning as in this section, and

• “trade” includes an office.

Textual Amendments

F1 Words in s. 673(2) substituted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 72(2) (with Sch. 4 para. 72(4))

F2 Word in s. 673(4) substituted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 72(3) (with Sch. 4 para. 72(4))

674 Disallowance of trading losses U.K.

(1) In calculating the company's taxable total profits of an accounting period beginning before the change in ownership, no relief may be given under section 37 or 42 (relief for trade losses) for a loss made by the company in an accounting period ending after the change in ownership.

(2) No relief may be given under section 45[F3 , 45B, 303B or 303D] for a loss made by the company in an accounting period beginning before the change in ownership by carrying forward the loss to reduce the profits of a trade of an accounting period ending after the change in ownership.

[F4 (2A) No relief may be given under section 45A or 303C for a loss made by the company in an accounting period beginning before the change in ownership by carrying forward the loss and deducting it from a company's total profits of an accounting period ending after the change in ownership.]

(3) For the purposes of this section and section 675—

(a) the accounting period in which the change in ownership occurs is treated as two separate accounting periods, the first ending with the change and the second consisting of the remainder of the period, and

(b) the profits or losses of the accounting period are apportioned to the two periods.

(4) The apportionment under subsection (3)(b) is to be made on a time basis according to the respective lengths of the two periods.

(5) But if that method of apportionment would work unjustly or unreasonably in any case, such other method is to be used as is just and reasonable.

(6) In subsection (2), “profits of a trade” includes interest or dividends treated as profits of a trade under section 46.

Textual Amendments

F3 Words in s. 674(2) inserted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 73(2)

F4 S. 674(2A) inserted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 73(3)

[F5 674A Section 674: exception for certain losses of ring fence trade U.K.

(1) Section 674 does not prevent relief being given for a loss if—

(a) the loss is made in a ring fence trade,

(b) the loss is not a non-decommissioning loss,

(c) it is condition A in section 673 that is met, and

(d) the major change by reference to which that condition is met did not occur within a period of 3 years in which the change in ownership occurred.

(2) In this section—

• “non-decommissioning loss” is to be interpreted in accordance with section 303A;

• “ring fence trade” has the same meaning as in Part 8 (see section 277).]

Textual Amendments

F5 S. 674A inserted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 74

675 Disallowance of trading losses: calculation of balancing charges U.K.

(1) The following provisions apply if relief in respect of the company's losses is restricted because of section 674(2).

(2) In applying the provisions of CAA 2001 about balancing charges to the company by reference to any event after the change in ownership, there is to be disregarded any allowance falling to be made in taxing the company's trade for any accounting period beginning before the change in ownership.

This subsection applies despite section 577(3) of CAA 2001.

(3) But subsection (2) does not apply if the allowance has been given effect to by means of relief against any profits of that accounting period or any subsequent accounting period beginning before the change in ownership.

(4) For the purposes of subsection (3), it is to be assumed that any loss attributable to any such allowance as is mentioned in subsection (2) is relieved before any loss which is not attributable to such an allowance.

[F6 676 Company reconstructions U.K.

(1) Subsection (2) applies if, before the change in ownership—

(a) a trade carried on by another company (“the predecessor company”) is transferred to the company, and

(b) the transfer is a transfer to which Chapter 1 of Part 22 applies (transfers of trade without a change of ownership).

(2) In determining any relief available to the company by virtue of [F7 Chapter 1 of Part 22], this Chapter applies as if—

(a) references to a trade carried on by the company included the trade as carried on by the predecessor company or by any predecessor of that company, and

(b) any loss sustained by the predecessor company or any predecessor of that company had been sustained by the company.

(3) Subsection (4) applies if, after the change in ownership—

(a) a trade carried on by the company is transferred to another company (“the successor company”), and

(b) the transfer is a transfer to which Chapter 1 of Part 22 applies.

(4) In determining—

(a) any relief available to the company under section 45[F8 , 45A, 45B, 303B, 303C or 303D] (carry forward of trading losses), or

(b) any relief available to the successor company or any successor of that company by virtue of section [F9 Chapter 1 of Part 22],

this Chapter applies as if references to a trade carried on by the company included the trade as carried on by the successor company or by any successor of that company.

(5) For the purposes of this section a company (“company A”) is a predecessor of another company (“company B”), and company B is a successor of company A, if the first or second condition is met.

(6) The first condition is that Chapter 1 of Part 22 applies in relation to company A and company B as respectively the predecessor and the successor within the meaning of that Chapter.

(7) The second condition is that—

(a) Chapter 1 of Part 22 applies in relation to company A and a third company (“company C”) as respectively the predecessor and the successor within the meaning of that Chapter, and

(b) company C is (whether by virtue of the first condition or this condition) a predecessor of company B.]

Textual Amendments

F6 S. 676 substituted (with effect in accordance with s. 32(2) of the amending Act) by Finance Act 2013 (c. 29), s. 32(1)

F7 Words in s. 676(2) substituted (with effect in accordance with Sch. 10 para. 32 of the amending Act) by Finance Act 2019 (c. 1), Sch. 10 para. 28(a)

F8 Words in s. 676(4)(a) inserted (with effect in accordance with Sch. 10 para. 32 of the amending Act) by Finance Act 2019 (c. 1), Sch. 10 para. 28(b)

F9 Words in s. 676(4)(b) substituted (with effect in accordance with Sch. 10 para. 32 of the amending Act) by Finance Act 2019 (c. 1), Sch. 10 para. 28(c)