Corporation Tax Act 2009 section 725

Reversal of previous accounting loss

Section 725 requires a taxable credit to be recognised when an accounting gain reverses a previous loss for which a tax debit was claimed on an intangible fixed asset.

• Where a company recognises an accounting gain that wholly or partly reverses a loss from an earlier period, and a tax debit was claimed for that earlier loss, a corresponding taxable credit must be brought into account.
• The credit is calculated as: recognised gain × (tax debit ÷ reversed loss), ensuring the credit is proportionate to the relief originally given rather than simply matching the accounting gain.
• This formula matters because the tax debit previously claimed may not have been the same amount as the accounting loss, so the credit on reversal is adjusted to reflect the actual ratio of tax relief to the original loss.
• This provision does not apply to gains arising on a revaluation of intangible fixed assets, which are dealt with separately under section 723.