1. Corporation Tax Loss Relief
Case I/II Losses
A loss is calculated the same as a profit, with tax adjustments applied
Specific rules set out how a trading loss may be used to reduce the corporation tax liability of the company
A distinction is made between using the loss against trading income and non-trading income

2. Corporation Tax Loss Relief
Case I/II Loss Relief
First claim for loss relief (S396A)– used in the current year against other trading income
A company must have at least two trades to apply this rule

3. Corporation Tax Loss Relief
Case I/II Loss Relief
Second claim for loss relief (S396A) – prior year against trading income
A trading loss may be carried back and used against trading income in the previous accounting period
Can only be done after the offset in the current year (first claim)

4. Corporation Tax Loss Relief
Case I/II Loss Relief
Third claim for loss relief (S396B) – current year against non trading income on a value basis
After the first two claims have been made the remaining loss can be used against non-trading income
Trading income is taxed at 12.5% while non trading income is taxed at 25%

5. Corporation Tax Loss Relief
Case I/II Loss Relief
Therefore the value of trading losses can only be allowed at 12.5%
The loss is effectively converted to a credit
Follow these steps
Calculate the corporation tax on non trading income
The loss to be offset is taken as follows:
Tax arising on non trading income/12.5% = loss required
Compare with loss available
Apply maximum loss

6. Corporation Tax Loss Relief
Case I/II Loss Relief
Fourth claim for loss relief (S396B) – prior year against non trading income on a value basis
If the loss has not been fully utilised under first three rules, the excess is applied on a value basis in previous accounting period

7. Corporation Tax Loss Relief
Case I/II Loss Relief
Fifth claim for loss relief (S396(1))– losses carried forward
Any unused losses after first four rules are carried forward indefinitely for use against the first available trading income of the same trade

8. Corporation Tax Loss Relief
Case I/II Loss Relief - Summary
First claim for loss relief – used in the current year against other trading income
Second claim for loss relief – prior year against trading income
Third claim for loss relief – current year against non trading income on a value basis
Fourth claim for loss relief – prior year against non trading income on a value basis
Fifth claim for loss relief – losses carried forward