Syllabus A4. Corporation Tax A4c. Taxable total profits

A4cvi. Restriction on the use of losses

Syllabus A4cvi)

Advise on the restriction on the use of losses on a change in ownership of a company

Anti-avoidance legislation

Purchasing loss making companies

The overall objective for companies forming a group is to minimise the tax liability of the group as a whole.

Therefore an attractive features of company to be acquired is if the company being purchased has trading losses brought forward.

There is anti-avoidance legislation that exists to prevent companies from trading in loss- making companies.

It states that a company with a trading loss brought forward will be denied the right to carry that loss forward in the following circumstances:

  1. If there is a change in ownership of the company


    There is a major change in the nature of conduct of the company's trade within any period of five years beginning no later than the change in ownership and no earlier than three years before the change in ownership.

    This rule applies to changes on or after 1 April 2017. Changes before 1 April 2017 are not examinable.

  2. If there is a change in ownership of the company


    There is a revival of the trade after the scale of activities had become small or negligible.


Greg Ltd. purchased all of the share capital of Bob Ltd. on 01/04/2016.

On 01/04/2016 Bob Ltd. had trading losses to carry forward of (£170,000).

In the two years to 31/03/2018, Bob Ltd. made trading profits of £150,000 leaving (£20,000) to be carried forward.

On 01/04/2018 Bob Ltd. changed the entire nature of it's trade from selling low cost bread to selling premium bread and expensive cakes. 

Will the (£20,000) be allowed to be carried forward further?

  • Solution

    Bob Ltd. has had a change of ownership and a change of nature of it's trade within a 5 year period of the change of ownership, therefore the (£20,000) will not be allowed to be carried forward.