CTM05040 - Corporation tax: restriction on relief for carried-forward losses: modified total profits
Source: gov.uk (2025-03-18)


CTA10/S269ZF (3) Step 1 and S269ZF (4)

The modified total profits are the starting point for calculating a company's qualifying trading profits, qualifying non-trading profits and (from 1 April 2020) qualifying chargeable gains (CTM05070 (https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm05070)).

To calculate the modified total profits, the amount of total profits is calculated in accordance with Step 1 of CTA10/S4 (2), with the following modifications (S269ZF (4)):
- Exclude any income from distributions within the scope of CTA09/PART9A.
- Exclude ring fence profits of oil and gas companies as defined in CTA10/S276.
- Exclude oil contractor's ring fence profits as defined in CTA10/S356LD.
- If a company is an insurance company exclude any 'I minus E' profit within FA12/S141 (2).
- Exclude deductions for trade losses that are carried forward and automatically set against subsequent trade profits under CTA10/S45 (4)(b) and CTA10/S45B. (The exception to this is certain deductions specified at CTA10/S269ZF (4)(e)(i) to (x), set out below.)
- Exclude any restricted carried-forward oil and gas ring fence losses that are set against profits from related activities under CTA10/S303B (4) or CTA10/S303D (5).
- Exclude carried-forward non-trading loan relationship deficits that can be set only against non-trading income under CTA09/S457 (3) or S463H (4).
- From 1 April 2020, exclude carried forward capital losses that are set against chargeable gains under TCGA92/S2A (1)(b).
The result is the modified total profits.

If the result of these modifications is a figure of nil or less than nil, the company is treated as having qualifying trading profits, qualifying non-trading profits (for periods before 1 April 2020) and qualifying trading profits, qualifying non-trading income profits and qualifying chargeable gains (for periods from 1 April 2020) of nil. There is no need to follow any further steps to calculate the qualifying trading and non-trading profits.

Capital losses

Capital losses carried forward

Accounting periods prior to 1 April 2020

When the company calculates its modified total profits, it does not need to exclude any deductions for allowable capital losses carried forward (TCGA92/S2A (1)(b)). These deductions were not referred to in the list of modifications at S269ZF (4), and so can still be made when the company calculates its modified total profits.

For example, in its accounting period ending 31 December 2018, a company has capital gains of £8 million and allowable capital losses carried forward from previous periods of £2 million. The company can deduct the £2 million allowable losses from its capital gains of the period when it calculates its modified total profits.

Accounting periods from 1 April 2020

With the introduction of the capital loss restriction that applies for these periods, companies will exclude deductions for carried forward capital losses for the purpose of calculating modified total profits. The list of modifications at S269ZF (4) was amended by FA20 so that deductions for capital losses accruing in an earlier accounting period are excluded (TCGA92/S2A (1)(b)).

Capital losses of the accounting period

The amount of chargeable gains included in the modified total profits for periods both before and after 1 April 2020 is the amount after deduction of capital losses of the accounting period under TCGA92/S2A (1)(a).

Distributions within the scope of CTA09/PART9A

Income from distributions within the scope of CTA09/PART9A is excluded from the calculation of modified total profits.

However, where distribution income constitutes trading income within CTA09/PART3, it is not within the scope of Part 9A and will not be excluded from the modified total profits total profits for the purposes of computing restriction.

Deductions specified at CTA10/S269ZF (4)(e)(i) to (x)

The company makes no deduction for most losses carried forward under CTA10/S45 (4)(b) and CTA10/S45B when calculating its modified total profits.

However, there are exceptions to this. Carried-forward losses of certain types of industry or business are excluded from the loss restriction calculation and can be relieved without restriction. These losses are:
- Losses of a film trade (CTA09/1209 (3), CTA09/1210 (5A) and CTA09/1211 (7A)),
- Losses of a television programme trade (CTA09/1216DA (3), CTA09/S1216DB (5A) and CTA09/S1216DC (7A)),
- Losses of a video game trade (CTA09/1217DA (3), CTA09/S1217DB (5A) and CTA09/S1217DC (7A)),
- Losses of a theatrical trade (CTA09/S1217MA (3) and CTA09/S1217MC (9)),
- Losses of an orchestral trade (CTA09/S1217SA (3) and CTA09/1217SC (9)),
- Losses of a museum or gallery exhibition trade (CTA09/S1218ZDA (3) and CTA09/S1218ZDC (9)),
- Losses of a UK or EEA furnished holiday lettings business (CTA10/65 (4B) and CTA10/S67A (5A)); but note that the Furnished Holiday Lettings regime has been abolished with effect from 1 April 2025),
- Insurance companies' shock losses (CTA10/S269ZI (1)),
- Losses of oil and gas ring fence trades that are unrestricted (CTA10/S304 (7)), and
- Pre-1 April 2017 losses from oil contractor activities (CTA10/S356NJ (2)).
Any losses of the above types carried forward under CTA10/S45 (4)(b) or S45B are deducted when a company calculates its modified total profits, unless the company has made a claim to prevent this relief and carry the amounts forward to a later accounting period (S45 (4A), S45B (5)).

Next step

If the company has modified total profits greater than nil, the next step is divide the profits into trading and non-trading profits (for periods before 1 April 2020) and trading profits, non-trading income profits and chargeable gains (from 1 April 2020) (CTM05050 (https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm05050)).