CTM04620 - Corporation Tax: trading losses - relief against total profits: restriction of relief for uncommercial trading - meaning of ‘larger undertaking’

CTA2010/S44(2)

The disallowance of relief for uncommercial trading losses (CTM04600) does not apply where:

• the trade forms part of a larger undertaking, and
• it is carried on with a view to profits in the undertaking as a whole.

There is no definition of ‘undertaking’. But you should regard it as meaning ‘trading undertaking’. There are no decided cases on whether a larger undertaking:

• can embrace the trades of several companies in a group, or
• is confined to the activities of a single company.

In a straightforward case you can accept that a loss is available for set-off by way of group relief, provided the ordinary group relief rules are satisfied. Group relief is dealt with at CTM80100 onwards. An example of a straightforward case is where a manufacturing company in a group sells its products cheaply to a fellow group member wholesaling company. In a case like this you can accept that the manufacturing company's loss is available for set-off by way of group relief against the correspondingly inflated profit of the wholesaler.

But in a case where you have reason to suspect abuse, send a report and the file to CTIAA (Technical). An example of a case where there might be abuse is the artificial inflation of a more flexible (sideways) relief at the expense of a less flexible (carry forward) relief.