Clause 30

Part of Finance (No. 2) Bill – in a Public Bill Committee at 2:15 pm on 14 December 2021.

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Photo of Lucy Frazer Lucy Frazer The Financial Secretary to the Treasury 2:15, 14 December 2021

Clause 30 makes technical amendments to the corporate loss relief rules introduced in 2017. They ensure that the rules continue to operate as originally intended and that eligible companies can claim the relief to which they are entitled. When a company makes a loss, it can carry forward that loss and use it to offset its taxable profits in the future.

The Finance (No. 2) Act 2017 reformed the UK’s loss relief regime. The corporation tax loss rules restrict set-off for carried-forward losses for large companies. In general, this means that only 50% of the current-year profits above the deductions allowance of £5 million can be covered by carried-forward losses. The restriction does not apply to accounting profits stemming from lease renegotiations that are aimed at preserving a company’s ability to continue trading. The impact of covid and the associated restrictions on businesses has resulted in an increase in the restructuring and renegotiation of leases. The introduction of a new accounting standard has meant that the legislation needs amending to cover the change in accounting treatment for leases, as without that, the lease renegotiations providing companies with the opportunity to remain in business will result in a prohibitive tax charge, which may instead force them into insolvency.

The changes made by clause 30 will ensure that companies in financial distress continue to benefit from full relief for carried-forward losses that offset accounting profits arising from lease negotiations, regardless of the accounting standard they adopt. The clause introduces a technical amendment to ensure that corporation tax loss relief rules work as intended, ensuring that companies in financial distress can access relief for their carried-forward losses.