CTM34710 - Residence: dual resident companies: apportionment of losses

The losses etc of the straddling period are apportioned for the purposes of ICTA88/SCH17/PARA1 (3) as follows:

• Trading losses, excess capital allowances which fall to be given by discharge or repayment, and excess management expenses are apportioned on a time basis according to the respective lengths of each accounting period (ICTA88/SCH17/PARA2).
• Excess charges on income are apportioned according to the dates on which the interest, and so on, was paid and in proportion to the amount of interest etc paid on those dates (ICTA88/SCH17/PARA3).

Example 1

A dual resident investing company draws up its accounts for the calendar year 1987. In this accounting period it incurs a loss of £100 made up of excess management expenses of £12 and excess charges of £88. It pays interest of £43 on 30 June 1987, and of £45 on 31 December 1987.

Under ICTA88/SCH17/PARA1 (3), the dual resident investing company's accounting period is divided into two component accounting periods, being 1 January 1987 to 31 March 1987, and 1 April 1987 to 31 December 1987.

The excess management expenses of £12 fall to be apportioned on a time basis, hence 3/12 are apportioned to the first period and 9/12 to the second. The excess charges, however, are apportioned according to the dates of payment. In this case, as no interest was paid in the first period the whole of the excess charges are allocated to the second period.

The loss of £100 is therefore apportioned:

1 January 1987 to 31 March 1987 3/12 x £12 = £3.

1 April 1987 to 31 December1987 9/12 x £12 = £9.

Excess charges 88/97.

£97 of the loss is not available for set off as group relief.

Example 2

A dual resident investing company draws up its accounts for the calendar year 1987. In this accounting period it incurs a loss of £100 made up solely of excess charges. It makes four interest payments in the year totalling £120, being 31 March 1987 £31, 30 June 1987 £30, 30 September 1987 £29 and 31 December 1987 £30.

The dual resident investing company's accounting period is divided into two component accounting periods as in example 1. Under ICTA88/SCH17/PARA3 (b), the excess charges are apportioned between the component accounting periods according to the dates of payment and in proportion to the amount of interest paid on those dates.

The loss of £100 is therefore apportioned:

1 January 1987 to 31 March 1987 31/120 x £100 = £25.83.

1 April 1987 to 31 December 1987 89/120 x £100 = £74.17.