Loss claims to be caught?

Posted on 19 Jan 2021
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Government’s immediate clamp-down on the practice of ‘loss buying’ is set to catch companies engaged in genuine commercial transactions, reports small business accountants Harris & Co.

The practice – used by companies that have incurred a significant loss and wish to realise an immediate economic benefit from that by selling on the loss so another party can claim the corporation tax loss relief – is expected to raise over £1bn, the Treasury has estimated.

In line with the clampdown, companies can expect to find their actions considered retrospectively up to the 20 March 2013, the day of the Budget.

KPMG’s head of tax policy, Chris Morgan, said however that there is an understanding in government that the legislation is complex, and might catch companies involved in genuine commercial transactions, which do not have other intentions.

‘The Treasury will be issuing draft legislation on this, and there will then be proper consultation with a view to making sure it works and that it doesn’t catch companies that it is not mean to catch,’ said Morgan.

Legislation will be introduced to extend the restrictions on access to brought forward losses following a change in ownership of a company.

The legislation will extend the rules so that they apply to shell companies with brought forward non-trading loan relationship deficits or non-trading intangible fixed asset debits. This is to ensure that companies which do not carry on a property or investment business or trade are nevertheless caught.

It will also amend the rules to make it clear that they apply where a transfer of a trade within a group occurs after a change in ownership of a company, so eliminating a technical defect which HMRC has long disputed.

These changes apply where a change of ownership takes place on or after 20 March 2013.

Changes are also being made to the group relief rules so that an apportionment of profits under the Controlled Foreign Company (CFC) rules must be taken into account in arriving at amounts available for surrender (including property business losses and management expenses but not trading losses or non-trading deficits). This change applies to surrender periods ending on or after 20 March 2013 but does not apply to any CFC profits arising before that date.

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