The ATT is concerned that changes designed to limit the amount of losses which the largest companies can set against capital gains will create additional obligations for all companies.
At Budget 2018 the Chancellor said that the corporate income loss restriction (CILR) introduced in April 2017 will be extended to include carried forward capital losses from 1 April 2020. Companies making capital gains will only be able to use carried forward capital losses to offset up to 50 per cent of those gains, subject to a deductions allowance of up to £5m per annum.1
In its response to an HMRC consultation,2 the ATT urges that the proposals should not create additional compliance obligations for companies that would otherwise be financially unaffected by the changes. Bringing capital losses into the loss restriction rules should be an opportunity to simplify compliance obligations, especially for those small and medium sized companies which are not their intended target, says the ATT.
Jon Stride, Co-chair of the ATT’s Technical Steering Group, said:
“We do not want to see companies that should be unaffected by this restriction having additional - and totally unnecessary - reporting requirements.
“We have expressed previously our concerns to HMRC regarding the existing compliance obligations for businesses of all sizes under the current corporate income loss restriction rules and are pleased that more guidance has now been released. This guidance will raise awareness of these obligations and assist companies in complying with them.”
The ATT recommends that a company should only be required to report the allocation of its deductions allowance between capital losses and the CILR in its tax return if its combined profits and gains exceed the overall level of the deductions allowance for the period. The ATT adds that the existing CILR legislation should be amended to clarify that companies are not required to state any amounts in their tax return in relation to the CILR where their profits fall below the level of their deductions allowance for the period. These two suggestions taken together would remove the risk of small companies inadvertently failing to comply with a compliance requirement and suffering a financial disadvantage that goes against the Government’s stated policy intention.
Jon Stride said:
“The extension of the loss restriction rules to include capital losses provides an opportunity to simplify the statutory reporting obligations, in particular for those small and medium sized companies and groups that are not the intended target of the Chancellor’s announcement. Failing that, HMRC could adapt the CT600 tax form to provide a dedicated space for reporting all of the required deductions allowances and allocations under both the current and expanded rules. This would act as a highly visible prompt and reminder to companies that they need to supply these figures, hopefully reducing the risk of them suffering an unintended restriction on their ability to claim loss relief."
Notes for editors
- To ensure that the restriction only impacts on companies making substantial gains, HMRC propose to extend the deductions allowance of £5 million (provided for CILR) to capital losses as well. HMRC’s consultation document (which can be found here) indicates that over 99 per cent of companies remain financially unaffected by both restrictions.
- The ATT’s response to the consultation can be found here.