Reliefs Available for the Deficits in Relationships of Non-Trading Loan, Restrictions on Loss Relief along with the Choice and Planning of Loss Relief and the Rollover Relief in Company Formation of UK

30 Oct

The blog will focus on the reliefs in case of deficit on the non-trading loan relationships, restrictions on loss relief (Continuity of trades, change in ownership causing the disallowance of relief of loss, uncommercial trades and farming and market gardening) and the choice of reliefs of loss, some other points of planning and the rollover relief.

The utilization of the deficits on the relationships of loan can be done in a similar manner as that of the losses of trade. A deficit on a relationship of non-trading loan can be subtracted in its entirety or in the form of parts, from the same accounting period of any profit. The relief is provided once the relief for the loss of trade has been brought forward but prior to the provision of relief for a loss of trade of the same or the upcoming period. A group relief can be acquired in the case of a deficit.

The subtraction of a deficit can be done from the income of non-trading type that occurs from the relationships of loan in the preceding 12 months. In such a case, the provision of relief is made once the loss of trade has occurred for the same or the upcoming period. It is important for the company formation of UK to make a claim within the duration of two years of the period of deficit.

In case of the deficits that are unrelieved after the above reliefs have been claimed, then the reliefs mentioned above are carried forward in an automatic way and subtracted from the non-trading profits of the UK company incorporation for succeeding the periods of accounting.

A company is allowed to make the choice of the amount of deficit that is to be relieved in the present or the current period, and the amount to carry back and carry forward. The case is different than that of relief of trading loss as these are not all or nothing claims, and the company can make a choice for a deficit to be carried back even in the case of it not claiming the relief for the present period.

Restrictions on Relief of Loss

If the limited company formation UK happens to have a change in its ownership, then the carry forward of the losses is contained or limited if there is also a noticeable change in the trade’s nature, within the duration of three years after the change in ownership of the limited company formation UK.

Case of Continuity of Trade

When you register a business name UK or a trade and expect it to be continued, then this section is of vital importance.

The availability of relief of carry forward loss can be found against the future profits that occur from the same trade as the one in which the loss took place.

After some parties register a business name UK, its continuity for this purpose is considered and explained in the form of a case that involves the trade of a company as brewers. Gordon Case CIR 1962: It stopped brewing but still continued to make the sale of beer and bottle. The company made a claim that it continued or kept into operation, the same kind of trade throughout and hence its losses suffered from brewing could be set off against the profits from the trade of bottles. Unfortunately, the company ended up losing the case and were disallowed to acquire any kind of relief in future in the case of losses suffered in the trade of brewing.

Change in Ownership Leading to the Disallowance of Relief of Loss

It is possible that the losses of trade are restrained when the company makes a change in its ownership and either of the conditions hold true:

  • A noticeable change in the conduct or nature of the trade within three years prior to or three years after there is a change in ownership, or
  • Once the change in ownership is made, the company’s activities of trade are subject to a revival of considerable nature that had become ignorable or small at the time the change occurred.

In case if the restriction is applicable, then any losses that are suffered prior to the changing in ownership cannot be carried forward against the profits after acquisition and any losses that are suffered once the change in ownership is not able to being carried back against the profits that occur prior to the change of ownership’s date.

As an example, consider that a company makes a change in its ownership on July 1, 2013 and there occurs a main change in the conduct or nature of the company’s trade between July 1, 2010 and June 30, 2016, then the carry forward losses and the carry back losses are subject to restriction.

The concept of noticeable change in the conduct or the nature of a trade can be explained by the following examples:

  • The case in which the type of property is dealt in, such as a company that runs a dealership in saloon cars that shift to a dealership in tractors.
  • The facilities or services provided such as a company that operates a public house being changed to the operation of a discotheque.
  • Markets or outlets.
  • Customers.

However, the changes made in order to keep the technology upgraded or in order to rationalize the variety of products that exist are not likely to be considered as a major. The HMRC brings both the quantitative issues and qualitative issues into consideration while making the decision of the query that if the change is a major one.

If there is an occurrence of change in ownership, instead of at the termination of an accounting period, the period is then apportioned into two, one of them up to the change and the other one after the change, for the fulfillment of the aim of this rule, with losses and profits being divided with respect to time.

A change in the ownership is not regarded for the fulfilment of this aim in the case of the company being an effective 75% subsidiary of the same company both immediately before or instantly after the change.

Trades that are Uncommercial

A type of loss made in a trade that is not conducted on the foundation of commercial basis, and with a proper intention or expectation of gain cannot be set against the profits of the company in the same or the preceding periods of accounting. These type of losses can only be found available in order to carry forward against the profits of the future of the same trade.

Company Carrying a Trade of Farming and Market Gardening

A company that runs the trade of farming or market gardening is taken into account in the same manner as one that trades on the uncommercial basis in any of the periods of accounting if, in the five continuous years instantly before that accounting period, the trade had to suffer a loss, prior to capital allowances.

Choice of Reliefs of Loss and Other Points of Planning

In order to make a choice of the relief for loss, you have to first take into account the rate at which the relief is acquired and additionally, the timing of the relief.

Choice of Reliefs for Loss

There can be an availability of substitute reliefs for loss. The following points should be taken under consideration while making a choice:

  • The rate at which the relief will be acquired, i.e. a main rate of 23% for the financial year 2013, 24% in financial year 2012 and 26% in FY 2011; the small profits rate of 20% in the financial year 2013, 20% in the financial year 2012 and 2011; marginal relief of 23.75% for the financial year 2013, 25% for the financial year 2012 and 27.5% in the financial year 2011.
  • How fast will be the acquiring of the relief: the relief for loss against the total profits is way fast than the carry forward relief for loss.
  • The extent to which the relief might be lost for the charitable donations that qualify.

Other Points for the Planning of Tax

As a normal practice, a company should make a claim for the capital allowances on its return of tax. A company that has suffered with losses can take into consideration to claim less than the maximum amount of capital allowances that are available. This may result in the value of tax written down that is higher to carry forward and hence higher capital allowances in the upcoming years.

The reduction in the capital allowances in the present period, results in the reduction of the available loss for relief against the net profits. A decremented claim of capital allowance can prove beneficial when the claim for the relief is made for all losses available. In this case, the relieving of the total loss is possible at a lower rate of tax in the preceding or the present period than that of effective rate of relief for capital allowances will be in the upcoming periods.

Availability of Rollover Relief

The availability of a rollover relief can be found in a capital gains group.

If a person is a member of a capital gains group and he/she makes the disposal of an asset that is eligible for the rollover relief of capital gains, it may take into account all of the group of companies as a single unit in order to fulfill the purpose of making a claim of such a relief.

In case of the obtaining or the acquiring by the other members of the group within the period that qualifies of one year before making the disposal to three years later on can hence be matched with the disposal. However, both the company that acquires and the company that disposes of, should make the claim. In the case of an asset that has to be transferred at the cost of no losses or no gains between the members of the group, then that type of transfer is not considered as the obtaining or an acquiring of an asset in order to fulfill the aim or the purpose of for the rollover or the holdover relief.


The points discussed in the blog can be summarized as follows:

The losses of trade can be relieved by subtraction from the total profits present, total sum of profits of the earlier periods or the upcoming income of trade. The losses of property business are first subtracted from the total profits of the present period and then are carried forward in order to be subtracted from the total profits of the future. The losses of trade that are carried forward can only be subtracted from the upcoming profits of the same trade. The relief from loss by subtraction from the total profits can only be provided by subtraction from the losses of the present period and from the profits of the preceding 12 months. The company can make a claim for the relief of loss for the present period without having to make a claim for the carry back. However, in the case of a loss that has to be carried back then a claim for the present period should be made at the first hand. The losses of trade in the preceding 12 months of the trade can be carried back and subtracted from the profits of the preceding 36 months. The deficits on the relationships of non-trading loan can be utilized in a similar manner to the losses of trade. If a company is made subject to the change in its ownership, then the carry forward has to be limited in the case of a noticeable change in the trade’s nature within the duration of three years since the change in ownership. In case of selecting a relief for loss, you first have to take into consideration the rate at which the relief is acquired, and then, the relief’s timing also has to be considered.

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