Under qualifying circumstances, Corporation Tax (CT) relief is available where a company makes a trading loss. The trading loss can be used to claim CT relief by offsetting the loss against other gains or profits of a business in the same or previous accounting period. The loss can also be set against future qualifying trading income.

There are however restrictions on ‘loss-buying’. These are situations where a person buys a trading company wholly or partly for its unused trading losses rather than solely for the inherent value of its trade or assets. The new owner usually seeks to introduce new activity into the company to keep its entitlement to loss relief.

The legislation governing this area can result in all the company’s unused carried- forward trading losses being cancelled where either:

• within any specified period, there is both; a change in the ownership of a company, and a major change in the nature or conduct of a trade carried on by the company,

or

• there is a change in ownership of a company at a time when the scale of its trading activities has become small or negligible.

For accounting periods beginning on or after 1 April 2017, the specified period is 5 years beginning no more than 3 years before the change in ownership occurs.

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