The rules for the Corporation Tax treatment of carried forward losses changed from 1 April 2017. The changes increased flexibility to set off carried forward losses against total profits of the same company or another company in a group whilst at the same time introducing new restrictions as to the amount of profits against which carried forward losses can be set.

A number of further changes to the Corporation Tax treatment of carried forward losses rules were included in the draft Finance Bill 2018-19. These measures make some amendments to the reform of loss relief rules to correct some anomalies.

The first change relates to the treatment of Basic Life Assurance and General Annuity Business (BLAGAB). We are told in HMRC’s policy paper that the inclusion of the special BLAGAB rules in the loss reform legislation created an unintended consequence that may result in relief for carried-forward losses being claimed in excess of that intended. Furthermore, the ‘BLAGAB rules’ do not fully meet the policy objective as they restrict losses using a measure of profit that is in part not subject to Corporation Tax and this can lead to excessive relief.

The other aspects of the legislation that require changes to ensure that they work as intended are as follows:

  • the deductions allowance 
  • terminal relief
  • transfer of a trade without a change of ownership
  • oil and gas losses

The change relating to BLAGAB was made effective from 6 July 2018 with all other changes expected to come into force from 1 April 2019.