Budget 2016: Corporation tax loss relief

Companies can carry forward trading losses indefinitely and set them off without limit against future profits from the same trade.

Trading losses brought forward cannot be carried forward and set against profits from different trade carried on by the same company and cannot be group relieved against profits earned by another group company.

Two reforms will be introduced from 1 April 2017. First, the current streaming rules will be made more flexible so that losses arising on or after 1 April 2017 will be useable, when carried forward, against profits from other income streams or other companies within a group.

Second, from 1 April 2017, companies will only be able to use losses carried forward against up to 50% of their profits above £5 million.

For groups, the £5 million allowance will apply to the group. These changes will not apply to the North Sea ring-fenced corporation tax regime.

The government will consult on the design of the reforms in 2016, and will legislate for the new.

For most companies there will be more flexibility in the use of losses brought forward from previous accounting periods, for losses incurred after 1 April 2017.

For larger companies, where group profits are greater than £5m, carried forward losses will be restricted, so it may take longer to use those losses. These losses can continue to be carried forward without time limit.