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corporation tax loss relief

The Court of Appeal was asked to decide if a company was entitled to use loss relief to cancel tax on extra profits that resulted from a tax enquiry. The company had lost its argument in the lower courts twice - would it be third time lucky?

The facts

The case of Civic Environmental Systems Ltd v Commissioners for Revenue and Customs 2023 (C v CRC) involved a long-running dispute over the rules for amending a claim for corporation tax (CT) loss relief. It began after HMRC started an enquiry into C’s CT returns. For 2007 it reported a profit of £142,000 and for 2008 a loss of £445,000. C claimed relief for the losses against its 2007 profit meaning it owed no CT for that year. The remainder of the loss, £303,000, was carried forward to use against later profits. That was all fine until HMRC started an enquiry.

Uplifted profits

At the end of HMRC’s enquiry C’s 2007 profit figure was adjusted to £682,000. C argued that its loss relief claim against the 2007 profits should be increased to use the whole £445,000. This would reduce C’s overall CT bill as well as penalties and interest resulting from the enquiry. HMRC refused C’s request because C had missed the deadline.

Time limit to amend returns

There’s a strict time limit for amending a CT return. It must be done within the two years from the end of the accounting period to which the return relates. C’s 2007 return was for the period ended 30 April 2007 so an amendment could have been made on or before 30 April 2009 but C’s claim was not made until May 2009.

Standalone loss relief claims

The second leg of C’s argument was that it was entitled to increase its 2008 loss relief claim to use it against the 2007 profits which had been increased because of HMRC’s enquiry. This would negate the time limit for amending its 2007 return - HMRC said “no”. C appealed to the First-tier Tribunal and, after losing there, it appealed to the Upper Tribunal where again it lost, but it was allowed to appeal to the Court of Appeal.

Court of appeal

Where an amendment to a tax return is not allowed because the time limit has passed, it’s still possible to obtain some types of tax relief by making a standalone claim, as long as the condition of the tax relief allows it. This was the main point the court had to consider. C’s original claim to use £142,000 of the 2008 loss against its 2007 profit had been a standalone claim, which was valid and accepted by HMRC. The bad news for C was that once a standalone claim for loss relief has been made the rules don’t allow for it to be amended. The Court of Appeal had no choice but to rule out C’s claim.

HMRC concession

HMRC has discretion to accept amendments to standalone loss relief claims and will often use it where profits increase as a result of an enquiry (see The next step ). However, in this case it refused to do so and it was not within the court’s power to override HMRC’s discretion.

Tip. This case is a lesson to be mindful of deadlines for claims and especially those for amendments to tax returns.

The court ruled against the company because it missed the strict two-year deadline for amending a tax return. It was also not entitled to amend its claim for loss relief. Once made this type of claim can’t be amended except where HMRC allows it by concession.

The next step

BIM85085 - Trade losses - claims to relief: changes to claims

This article has been reproduced by kind permission of Indicator – FL Memo Ltd. For details of their tax-saving products please visit or call 01233 653500.

31st Jul 2023 12:30

corporation tax loss relief

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