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There will be circumstances in which there is no tax payable because either there are no chargeable profits, or because chargeable profits are reduced by the availability of other losses or reliefs, such as group relief or losses carried-forward. However, there may be an uncertainty regarding the way in which the losses themselves are calculated 鈥� these uncertainties are also within scope of the regime and should be notified to HMRC subject to the same requirements as in all other cases.

However, when calculating the tax advantage, expected amount and uncertain amount, there are differences in the calculation steps and specific rules which should be taken account of.

If there is no reasonable prospect of the loss being used to support a claim to reduce a tax liability of any person, then the tax advantage is taken to be nil.

No account to be taken for group relief or repayments of director鈥檚 loans

Where income is included in a relevant return that results in profits chargeable to corporation tax, group relief may be claimed to reduce the amount of Corporation Tax (CT) payable (or eliminate the charge altogether).

For the purposes of calculating the expected amount, uncertain amount, and tax advantage, where the amount of income leading to chargeable profits is uncertain, any amount of group relief that is utilised or could be utilised to reduce the profits chargeable to CT is to be ignored.

Likewise, repayments of director鈥檚 loans by close companies (s458 CTA 2010) are not to be taken into account in calculating the tax advantage.

Example

Company A receives 拢102 million on which there is an uncertainty over whether the amount should be treated as an exempt capital receipt or as taxable income. The company classifies the amount as an exempt capital receipt in computing its profits chargeable to CT, which results in an overall taxable profit of 拢86 million after accounting for other income and expenses.

Company B (a fellow company within the same 75% group) surrenders 拢40 million in group relief to Company A, following a qualifying claim. This reduces Company A鈥檚 profits chargeable to corporation tax to 拢46 million. Although the group relief has reduced the amount of tax payable by Company A overall, for the purposes of calculating the expected amount, uncertain amount and tax advantage, it should be ignored.

In this case, the uncertain amount is 拢0, the expected amount is 拢102 million and the tax advantage is based upon the difference of 拢102 million. Although group relief is available, for the purposes of calculating the tax advantage, it is not possible to offset this against the amount of the tax advantage.

Uncertain amount and expected amounts are both loss amounts

Where an uncertain tax treatment applies to the calculation or generation of a tax loss for the purposes of income tax or corporation tax, special rules are to apply in quantifying the uncertain amount and expected amounts in calculating the tax advantage for the purposes of the threshold test. The approach to be taken is different depending on whether the loss is fully or partially utilised by the company or partnership.

(a) Where the loss is fully utilised

The uncertain amount is the actual amount of the tax reduction arising from the utilisation of the loss which arises by application of the tax treatment.

The expected amount is the amount of the tax reduction which would have arisen, had the alternative tax treatment applied.

The tax advantage is then the difference between the expected amount of the tax reduction and the uncertain amount of the tax reduction.

This approach is therefore identical to the approach taken where the tax advantage is not a loss amount.

Example

Company A and Company B are members of the same 75% group for the purposes of the group relief provisions. In the period ending 31 December 2024, Company A has surrenderable losses of 拢32 million which is claimed by Company B. Company B has profits chargeable to corporation tax of 拢45 million for this period, so the group relief reduces this to 拢13 million.

However, in quantifying the losses available for surrender by Company A, there is an uncertainty over the application of Part 8 CTA 2009 to the calculation of non-trading losses on intangible fixed assets. Company A makes a provision in its accounts to recognise the uncertainty, thereby meeting this notification trigger.

In this case, the uncertain amount is a 拢32 million loss and the expected amount is a 拢nil loss. The 拢32 million loss is fully utilised, so the tax advantage is arrived at by applying the additional corporation tax that would be payable by Company B - for example, if Company B pays corporation tax at 19%, the tax advantage would be 拢6,080,000.

(b) Where the loss is not fully utilised

In circumstances where a loss is not fully utilised, there are two elements to calculating the tax advantage

1. For any amount that is utilised, calculate the tax advantage as above.
2. For any unutilised amount of a loss that remains, the tax advantage of this amount of the loss is 10% of the amount of the loss that is unutilised.

The total tax advantage is the sum of both amounts.

Example

Company A and Company B are members of the same 75% group for the purposes of the group relief provisions. In the period ending 31 December 2024, Company A has surrenderable losses of 拢98 million of which 拢22 million is claimed by Company B. Company B has profits chargeable to corporation tax of 拢22 million for this period, so the group relief reduces this to nil.

However, in quantifying the losses available for surrender by Company A, there is an uncertainty over the application of Part 8 CTA 2009 to the calculation of non-trading losses on intangible fixed assets. Company A makes a provision in its accounts to recognise the uncertainty, thereby meeting this notification trigger. The expected amount of the loss is 拢38 million and the uncertain amount is the difference between the expected amount and the returned loss 拢98 million - 拢38 million = 拢60 million loss.

In this case, the uncertain amount (拢60 million loss) is only partially utilised, with 拢22 million being surrendered to Company B. The tax advantage is split into two components:

First - the amount of the loss which is utilised (拢22 million). The tax advantage is arrived at by applying the additional corporation tax that would be payable by Company B to this amount - for example, if Company B pays corporation tax at 19%, the tax advantage would be 拢4.18 million; and

Second 鈥� the loss that is unused = 拢38 million. Applying 10% to this amount the tax advantage is 拢3.8 million

The tax advantage is arrived at by adding the tax advantages calculated for these two amounts, which is 拢7.98 million.

However, if there is no reasonable prospect of the loss being used to support a claim to reduce a tax liability of any person, then the tax advantage is taken to be nil.

Cases where uncertain amount is a loss, but the expected amount is not a loss

Example

In the period ending 31 March 2025, Company A generates a capital loss of 拢57 million . However, this amount is uncertain, and the expected amount is a capital gain of 拢10 million. In this scenario, the uncertain amount is a loss whilst the expected amount is not a loss. The calculation of the tax advantage should follow the same approach as cases where the entire loss is utilised. Here, the difference between the uncertain amount and expected amount is 拢67 million. The prevailing rate of CT should be applied to this amount to determine the tax advantage, e.g., if the rate of CT is 20%, the tax advantage is 拢13.4 million.

What does 鈥渞easonable prospect鈥� mean?

In determining whether there is a reasonable prospect of the uncertain loss being used to support a claim to reduce a tax liability, businesses must follow the same process as applies to the determination of potential lost revenue for penalties for inaccuracies (see CH82370).

FA22/SCH17/PARA14