UK: Finance Act 2015 - Avoidance Using Carried-Forward Losses

Last Updated: 11 May 2015
Article by Catherine Richardson

Tax analysis: Catherine Richardson, associate at Cadwalader, Wickersham & Taft LLP, examines the aspects of the Finance Act 2015 (FA 2015) which concern targeting avoidance using carried-forward losses.

What is the target for the new rule countering tax avoidance involving carried-forward losses?

Where losses for tax purposes arise within a company within a given year, such losses may be able to be offset against profits from other activities or surrendered to another company within the corporate group. When losses for tax purposes are not utilised in the year in which such losses arose, the ability of the company to utilise these losses going forward is generally restricted to the company and the activity in relation to which the losses arose. To this extent, the losses are 'carried forward'. As a result, current year losses are regarded as more flexible and valuable than carried-forward losses. Arrangements have therefore been devised which 'refresh' older carried-forward losses into newer, in-year losses.

FA 2015 introduces new rules (at FA 2015, s 33 and Sch 3) aimed at restricting the ability of companies to use tax-motivated arrangements to 'refresh' carried-forward losses.

These new rules are intended to target contrived arrangements rather than normal tax planning around mainly commercial transactions.

HMRC's Technical Note on the new rules, published on 18 March 2015, distinguishes between arrangements which utilise trapped losses by either shifting profits around the group or changing the timing of receipts and arrangements which go further by also creating a new in-year loss in the group such that the carried-forward loss is a new and more versatile loss. It is only this latter type of arrangement which is being targeted and, even then, only when it is reasonable to assume that the value of the tax advantage obtained will exceed any other economic benefits referable to the arrangement.

It is interesting to note that the use of arrangements to utilise 'trapped' non-trade deficits was expressly included in the general anti-abuse rule (GAAR) guidance as an example of a legitimate arrangement which would fall short of the reach of the GAAR.

When did this rule come into effect?

Although FA 2015 received Royal Assent on 26 March 2015, the new rules preventing the refreshing of corporate losses applies for the purposes of calculating taxable profits of companies for accounting periods beginning on or after 18 March 2015 (being the date of the Chancellor of the Exchequer's Budget speech) but may apply in respect of arrangements entered into prior to this date.

Profits arising within an accounting period which straddles 18 March 2015 will be allocated to a notional period beginning on 18 March 2015, apportioned on a time basis or other just and reasonable basis.

How hard do you think this rule will be for companies to monitor, given they need to consider what was 'reasonable to assume', whether securing a tax advantage was a main purpose and comparing the tax value of the arrangements against their non-tax value?

The question of identifying whether the new rules will need to be considered in greater detail should be somewhat straightforward for companies to monitor as companies should be able to easily identify when carried forward losses exist and when consideration is being given as to how best to utilise such carried forward losses. At the same time, the relatively novel and highly subjective nature of the conditions to be satisfied has the potential to become a time consuming and complicated exercise. It is also worth noting that the 'reasonable to assume' test appears (albeit in a different context) in the new diverted profits tax legislation which was also enacted in FA 2015.

Some comfort may be able to be taken from the fact that the 'reasonable to assume' condition is determined at the time when the arrangement was entered into and accordingly should not require the company to continue to monitor the relative tax and non-tax values of the arrangements although determining the tax and non-tax values will present its own challenges.

Could the impact of this rule be wider than anticipated?

Most definitely. The risk of the rules being wider than intended is likely to be a legitimate concern for corporation taxpayers and their advisers. While it is not the intention of the government that normal tax planning around commercial transactions should fall within the scope of the new rules, the broad terms in which the new rules are drafted and, specifically, the subjectivity deployed in the conditions (as noted above) has the potential to inadvertently capture legitimate tax planning and the utilisation of carried-forward losses.

The new rules will also likely impact upon distressed restructuring and reorganisation transactions where the utilisation of losses for tax purposes is a significant factor in commercial negotiations. The new rules will not only need to be considered by companies in the context of their own tax planning and structuring but also, for example, in the context of M&A tax indemnities in relation to the circumstances in which carried-forward losses have been utilised historically.

If the rule applies, what happens to the carried-forward losses?

If all the necessary conditions for the carried-forward loss refresh prevention rules to apply are satisfied, the company to which the profits arose as a result of the arrangement will be denied a deduction against those profits for any amount in respect of the relevant carried-forward losses. It is significant that this is a denial of the deduction in whole rather than allowing any apportionment or deduction on a 'to the extent' basis but is arguably consistent with the policy intentions and motivations behind the new rules.

It is, though, worth noting that although the rules prevent a deduction against the relevant profits arising as a result of the arrangements, the carried-forward losses are not lost altogether and may still be available to be used in accordance with the normal rules for their use against profits not arising as a result of the arrangements.

How do these rules interact with the new rules restricting carry-forward loss relief for banks?

FA 2015 also includes new rules which seek to restrict to 50% of taxable profits the extent to which carried-forward losses can be utilised by banks and building societies (FA 2015, s 32 and Sch 2). These restrictions on banks and building societies will take precedence over the restrictions on the refreshing of carried-forward losses for corporation tax purposes. This is the case as one of the tests to be satisfied in determining whether the offsetting of corporation tax carried-forward losses will be denied requires that the tax arrangements are not arrangements in respect of which a deduction would be denied by virtue of the limitation imposed on banks and building societies.

Interviewed by Alex Heshmaty.

This article was first published on Lexis®PSL Tax on 20 April 2015.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions