Corporation Tax Loss Relief Case I/II Losses A loss is calculated the same as a profit, with tax adjustments applied Specific rules set out how a trading loss may be used to reduce the corporation tax liability of the company A distinction is made between using the loss against trading income and non-trading income

Corporation Tax Loss Relief Case I/II Loss Relief First claim for loss relief (S396A)– used in the current year against other trading income A company must have at least two trades to apply this rule

Corporation Tax Loss Relief Case I/II Loss Relief Second claim for loss relief (S396A) – prior year against trading income A trading loss may be carried back and used against trading income in the previous accounting period Can only be done after the offset in the current year (first claim)

Corporation Tax Loss Relief Case I/II Loss Relief Third claim for loss relief (S396B) – current year against non trading income on a value basis After the first two claims have been made the remaining loss can be used against non-trading income Trading income is taxed at 12.5% while non trading income is taxed at 25%

Corporation Tax Loss Relief Case I/II Loss Relief Therefore the value of trading losses can only be allowed at 12.5% The loss is effectively converted to a credit Follow these steps Calculate the corporation tax on non trading income The loss to be offset is taken as follows: Tax arising on non trading income/12.5% = loss required Compare with loss available Apply maximum loss

Corporation Tax Loss Relief Case I/II Loss Relief Fourth claim for loss relief (S396B) – prior year against non trading income on a value basis If the loss has not been fully utilised under first three rules, the excess is applied on a value basis in previous accounting period

Corporation Tax Loss Relief Case I/II Loss Relief Fifth claim for loss relief (S396(1))– losses carried forward Any unused losses after first four rules are carried forward indefinitely for use against the first available trading income of the same trade

Corporation Tax Loss Relief Case I/II Loss Relief - Summary First claim for loss relief – used in the current year against other trading income Second claim for loss relief – prior year against trading income Third claim for loss relief – current year against non trading income on a value basis Fourth claim for loss relief – prior year against non trading income on a value basis Fifth claim for loss relief – losses carried forward