In a moment of (seeming) generosity, the chancellor will make carried forward loss relief more flexible from April 2017. But the price is a restriction on carried forward losses, which can only be used more slowly – against 50% of profits at a time (and banks are hit further as their existing restriction drops from 50% to 25% from April 2016). It is to be hoped that the added flexibility will have real ‘flex’ in it to compensate big business, but the challenge to HMRC is to avoid the added complexity so endemic in recent ‘simplification’ undertakings.
In the best tradition of card tricks, the chancellor is performing a pretty sleight of hand as we see loss relief reformed from next year. On the one hand we have the promise that the UK’s carried forward loss relief rules will from 2017 be brought in line with other European countries and become ‘more flexible’ – losses arising from 1 April 2017 will be useable against different income streams or profits from other group companies. Business cannot help but be in favour of that.
However, while we are all wowed by the flash-bang in that hand, the other hand is pick-pocketing – also from 1 April 2017, all carried forward losses will only be off-settable against 50% of profits. In theory, this is only a timing difference, not an absolute restriction, but they said that when shadow ACT first came in and that story did not end well. It does not seem fair or equitable that all the losses made during eight years of economic instability will be restricted, whilst the new flexibility will only apply to losses incurred on or after 1 April 2017.
Only profits over £5m will be hit, but before big business rejoices bear in mind that that is £5m per group, not per company (although the £5m can be shared amongst group members).
Remember as well that they have somehow got to link all this into the new rules they will be enacting to restrict interest deductibility, a la Base Erosion and Profit Shifting Action Point 4, where volatility in earnings and interest will need to be addressed. If they want to get all this enacted for FA 2017 with a proper public consultation, they really need to get a move on.
One might wonder if industry at large will take this one on the chin, but perhaps they will just be grateful not to be the banks, who are getting bludgeoned a second time: from 1 April 2016, banks’ pre-April 2015 historic losses can be set-off against a mere 25% of profits. No-one outside the sector cried any tears at Autumn Statement 2014 when the banks were clobbered the first time, so now HMRC is emboldened to have a go at everyone in big business.
Some may say that the 50% restriction is worth the price to get the added flexibility, but that will only be true if the new rules really are flexible. We have no clue yet what they will look like, but I will be surprised if it proves anything like as straightforward as the Budget statement makes it look. Given HMRC’s recent track record, I am gloomily expecting this piece of ‘modernisation’ to equal one of either:
30 pages of legislation and at least three targeted anti-avoidance rules; or
a simple bland statement linked to a ‘main purpose’ test no-one has any certainty in actually applying.
We are the United Kingdom, after all, and over-cooked complication is our signature dish. Come on, HMRC, prove me wrong – you know you want to.
Home >Articles > Carried forward loss relief changes
Carried forward loss relief changes
In a moment of (seeming) generosity, the chancellor will make carried forward loss relief more flexible from April 2017. But the price is a restriction on carried forward losses, which can only be used more slowly – against 50% of profits at a time (and banks are hit further as their existing restriction drops from 50% to 25% from April 2016). It is to be hoped that the added flexibility will have real ‘flex’ in it to compensate big business, but the challenge to HMRC is to avoid the added complexity so endemic in recent ‘simplification’ undertakings.
In the best tradition of card tricks, the chancellor is performing a pretty sleight of hand as we see loss relief reformed from next year. On the one hand we have the promise that the UK’s carried forward loss relief rules will from 2017 be brought in line with other European countries and become ‘more flexible’ – losses arising from 1 April 2017 will be useable against different income streams or profits from other group companies. Business cannot help but be in favour of that.
However, while we are all wowed by the flash-bang in that hand, the other hand is pick-pocketing – also from 1 April 2017, all carried forward losses will only be off-settable against 50% of profits. In theory, this is only a timing difference, not an absolute restriction, but they said that when shadow ACT first came in and that story did not end well. It does not seem fair or equitable that all the losses made during eight years of economic instability will be restricted, whilst the new flexibility will only apply to losses incurred on or after 1 April 2017.
Only profits over £5m will be hit, but before big business rejoices bear in mind that that is £5m per group, not per company (although the £5m can be shared amongst group members).
Remember as well that they have somehow got to link all this into the new rules they will be enacting to restrict interest deductibility, a la Base Erosion and Profit Shifting Action Point 4, where volatility in earnings and interest will need to be addressed. If they want to get all this enacted for FA 2017 with a proper public consultation, they really need to get a move on.
One might wonder if industry at large will take this one on the chin, but perhaps they will just be grateful not to be the banks, who are getting bludgeoned a second time: from 1 April 2016, banks’ pre-April 2015 historic losses can be set-off against a mere 25% of profits. No-one outside the sector cried any tears at Autumn Statement 2014 when the banks were clobbered the first time, so now HMRC is emboldened to have a go at everyone in big business.
Some may say that the 50% restriction is worth the price to get the added flexibility, but that will only be true if the new rules really are flexible. We have no clue yet what they will look like, but I will be surprised if it proves anything like as straightforward as the Budget statement makes it look. Given HMRC’s recent track record, I am gloomily expecting this piece of ‘modernisation’ to equal one of either:
30 pages of legislation and at least three targeted anti-avoidance rules; or
a simple bland statement linked to a ‘main purpose’ test no-one has any certainty in actually applying.
We are the United Kingdom, after all, and over-cooked complication is our signature dish. Come on, HMRC, prove me wrong – you know you want to.
