Losses Carried Forward

Gone are the times one had a reasonable expectation that a struggling business would be nurtured back to life with the benefit of new profits generated being relieved for tax purposes by former losses as a matter of course. Whilst we have always had a rule that the profits needed to be generated from the same trade we had not, until recently, had a time cap on the use of such losses, unlike many other countries.

George Osborne's 2015 Budget followed a court case (Leekes Ltd v Revenue & Customs) in which the Revenue lost. Here, a company ran out of town department stores and acquired another company running furniture stores and warehousing facilities, which had accumulated significant trading losses. Following the acquisition, the trade was transferred and the Leekes branding was adopted although the stores continued to sell the same types of products to essentially the same demographic customer base.

Although the stores formerly run by the target company continued to incur an overall loss, Leekes was allowed by the Court to offset part (£1.6m) of the losses brought forward against the profits of the combined business.

It is thus of little surprise that the first foray into restricting losses...