Legislation will be introduced in Finance Bill 2021 to make technical changes to the loss relief rules. The loss relief rules were significantly reformed with effect from 1 April 2017, and the government has stated that these further changes are being made to ensure that the legislation works as intended and to reduce administrative burdens for businesses.
The amendments will ensure that groups have access to the deductions allowance to which they are entitled for the period prior to a change in the ultimate parent through acquisition or demerger. Specifically, such groups will be allowed to make a nomination where there was not a valid nomination at the date the deductions allowance group ceased to exist. A nominated company will be able to submit a group allowance allocation statement for periods up to the date the group ceased to exist and thereby have access to a deductions allowance for that period. Transitional provisions will allow an otherwise out of time allocation statement to be submitted.
Amendments will also be made to:
All companies and unincorporated associations that pay corporation tax and have losses carried forward will need to be mindful of the updated rules, although most of the proposed amendments impact very specific circumstances only.
The amendment to the nomination procedure and submission of a group allowance statement where a deductions allowance group ceases to exist will apply retrospectively with effect from 1 April 2017.
The following amendments will be treated as having always had effect:
Certain amendments required as a consequence of the introduction of Corporate Capital Loss Restriction will be treated as having always had effect since 1 April 2020.
The following amendments will apply for accounting periods beginning on or after 1 April 2021:
The extension of the definition of “change of ownership” will apply for acquisitions made on or after 1 April 2021.
These rules are already highly complex and the new legislation will need to be carefully reviewed when it becomes available.
The retrospective change in the nomination process and submission of the allocation statement will be welcome by groups which are as a technical matter currently prevented from accessing the deductions allowance as a result of change in the ultimate parent. Groups carrying out reorganisations involving a change of ownership and a transfer of trade will need to review the amendments to determine if they are impacted. Administrative simplifications will be welcomed by all businesses with carried forward losses, but these rules remain far from simple overall.