BIM75500 - Trading losses: types of relief: carry forward of losses
ICTA88/S385
Where a person (individual, partner or trustee) sustains a loss
in a trade, profession or vocation and relief for that loss has not
been given under another taxation provision the loss can be carried
forward under ICTA88/S385. Such a loss can only be set off against
profits arising from the same trade, profession or vocation.
Where the claimant carries on a trade and there is an
insufficiency of trading profits against which the loss may be set
the loss can be set off against interest or dividends (including
any tax credits) which would be regarded as trading receipts if
they were not taxed under other provisions (ICTA88/S385 (4) and
ICTA88/S458 (2)), see
BIM40800 onwards.
Such losses must be set off against the first year in which a
profit arises and any balance must then be set off in the next year
in which a profit arises.
No carry-forward is allowable except so far as the ownership
and identity of the business during the tax years for which the
allowance is claimed remain the same as during the period in which
the loss was incurred (see Batty v Baron Schroder [1939] 23TC1,
United Steel Companies Ltd v Cullington (No.2) [1940] 23TC91, Goff
v Osborne & Co (Sheffield) Ltd, [1953] 34TC441 and Rolls-Royce
Motors Ltd v Bamford [1976] 51TC319).
ICTA88/S386
ICTA88/S386 allows for the carry-forward of losses in cases
where the proprietor or partners in a private business take all the
shares in a company to which the business is transferred. It also
applies where such a company additionally issues other shares, and
where two or more private businesses are amalgamated to form a
company. The shares must be taken as the sole or main consideration
for the transfer of the business to the company.
Where the consideration is expressed in the vending agreement
to be cash, but the whole amount is subscribed for shares in the
company, the shares may, for the purposes of the relief, be
regarded as the consideration.
The income against which the carry-forward is allowable
includes dividends (including any tax credits), interest,
remuneration or rent received from the company, see
BIM40800 onwards.
The carry-forward is to be set first against any income from
the company which is the subject of direct assessment on the
shareholder (for example directors' fees or other remuneration).
The amount of the agreed loss should be to the office which
issues the individual’s return, together with a note that an
Inspector should be told if the individual disposes of any of their
shares in the company. In practice, ICTA88/S386 relief should not
be refused so long as the individual keeps shares which represent
more than 80% of the consideration received for the business.
ICTA88/S387
The loss to be carried forward under ICTA88/S387 (1) is the
amount assessed under ICTA88/S350 in so far as tax has been paid
thereon. Accordingly, relief in respect of such loss should not be
given until payment of the relevant tax charged on the assessment
under ICTA88/S350 has been checked.
The guidance above for ICTA88/S385 losses also applies to
losses carried forward under ICTA88/S387 (1).
Certain classes of payment resulting in liability under
ICTA88/S350 in which the assessment is not available for
carry-forward under ICTA88/S387 (1) are set out in subsection
(3):
- Any payment falling within section ICTA88/S349 (2);
- Any capital sum paid in respect of any patent rights assessed under ICTA88/S349 (1) by virtue of ICTA88/S524;
- Any payment of, or on account of, copyright royalties to which ICTA88/S536 applies, or royalties in respect of a right in a design to which ICTA88/S537B applies.
