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Example 1

In an accounting period beginning on 1 January 2016, a UK company received an overseas dividend of 拢200,000, with foreign tax paid of 拢36,000, and UK trading profits of 拢50,000.

In the previous accounting period, it had a non-trading deficit of 拢300,000 to be carried forward under CTA09/S457.

Although the company has trading profits, as the non-trading deficits arose in an accounting period beginning before 1 April 2017, the carried forward non-trading deficits cannot be set against the trading profits.

In order to maintain maximum foreign tax credit relief the company claims under CTA09/S458(1) to set only 拢20,000 of the non-trading deficits brought down against the non-trading profits of the period. The unutilised 拢280,000 deficits are carried forward to set against the non-trading profits of the following period.

• Dividend - 拢200,000
• Part deficit cf - minus 拢20,000
• Net non-trading Profits - 拢180,000
• Trading profits - 拢50,000
• Chargeable profits 拢230,000
• CT@20% - 拢46,000
• Double taxation tax credit relief - 拢36,000
• CT payable 拢10,000

Double taxation relief is limited to the lower of foreign tax charged on the foreign income or the UK CT attributable to that income.

By utilising just 拢20,000 of the NTLR deficit against the dividend income, and carrying forward the balance, the company has ensured that the UK CT chargeable on the foreign divided income is 拢36,000, and that there is no restriction on the amount of DTR available.

If the company had chosen to utilise a greater amount of the NTLR deficit and carry forward a smaller deficit, the computation would have been as follows:

• Dividend - 拢200,000
• Part deficit cf - minus 拢100,000
• Net non-trading Profits - 拢100,000
• Trading profits - 拢50,000
• Chargable profits - 拢150,000
• CT@20% - 拢30,000
• Double taxation tax credit relief - 拢20,000
• CT payable - 拢10,000

The tax effect of this is that the amount of CT payable for the period would remain at 拢10,000. The amount of foreign tax credit relief would be limited to the UK CT on the foreign dividend income (i.e. 拢20,000), with the balance of 拢16,000 foreign tax credits 鈥渓ost鈥�. The NTLR deficit to carry forward would be 拢200,000 rather than 拢280,000. In effect, some 拢80,000 of NTLR deficit would be used in this computation to cover UK CT that could otherwise have been covered by DTR credits.

Example 2

In an accounting period beginning on 1 June 2018, a UK company has trading income of 拢100,000 and property income of 拢70,000.

It also has non-trading deficits of 拢300,000 carried down from the previous accounting period which began on 1 June 2017.

As the non-trading deficit arose in an accounting period beginning after 1 April 2017, when the conditions to carry it forward are satisfied, the non-trading deficit can be set against the company鈥檚 profits of any kind (excluding ring fenced profits).

• Trading profit - 拢100,000
• Property income - 拢70,000
• Part deficit cf - minus 拢170,000
• Net profits - nil

Assuming the conditions are still met, the 拢130,000 unutilised non-trading deficits are then carried forward again to the following period.